RES5 1st Ed V1.0 (Full Combined) Rules, Ethics, and Skills for Financial Advisory Services PDF

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The SCI is not engaged in rendering legal, tax, investment or other professional advice and the reader should consult professional counsel as appropriate. We have tried to provide you with the most accurate and useful information possible. However, the information in this publication may be affected by changes in law or industry practice, and, as a result, information contained in this publication may become outdated. This material should in no way be used as an original source of authority on legal matters. Any names used in this Study Text are fictitious and have no relationship to any persons living or dead. 1st Edition published in February 2024. Table Of Contents Part I: Rules Chapter 1 Financial Advisers Act And Financial Advisers Regulations – Financial Advisers And Representatives 1-1 1. Financial Advisers Act (FAA) 2. Financial Advisers Regulations (FAR) 3. Principles Of The FAA And FAR 4. Need For Financial Adviser’s Licence 5. Application For Grant Of Financial Adviser’s Licence 6. Exempt Persons 7. Use Of The Term “Financial Adviser” Or “Life Insurance Broker” 8. Use Of The Term “Independent” 9. Launch Of Representative Notification Framework (RNF) 10. Who Are Representatives? 11. Appointed Representative 12. Provisional Representative 13. Differences Between Appointed Representative And Provisional Representative 14. Notification Procedure 15. Power Of The MAS To Refuse Entry Or Revoke Or Suspend Status Of Appointed Or Provisional Representative 16. Power Of The MAS To Impose Conditions Or Restrictions 17. False Statements In Relation To Notification Of Appointed Or Provisional Representative 18. Appeals Chapter 2 Financial Advisers Act And Financial Advisers Regulations – Conduct Of Business, Powers Of Authority And Offences 2-1 Contents 1. Obligation To Disclose Product Information To Clients 2. Statements By Licensed Financial Advisers 3. Recommendations By Licensed Financial Advisers 4. Receipt Of Client’s Money Or Property 5. Obligation To Furnish information To The MAS 6. Insurance Broking Premium Accounts 7. Negotiation And Placement Of Risk With Unlicensed Insurers 8. Representations By Licensed Financial Advisers 9. Licensed Financial Adviser To Disclose Certain Interests In Specified Products 10. Unsecured Advances, Unsecured Loans, And Unsecured Credit Facilities 11. Approval Of Chief Executive Officer And Director Of Licensed Financial Adviser 12. Removal Of Officer Of Licensed Financial Adviser 13. Power Of Authority To Issue Written Directions 14. Prohibition Orders Copyright reserved by the Singapore College of Insurance Limited [V1.0] i RES 5: Rules, Ethics and Skills for Financial Advisory Services 15. Power Of Authority To Publish Information 16. Corporate Offenders And Unincorporated Associations 17. Offence By Officers 18. Falsification Of Records By Officers, etc Chapter 3 MAS Notices – Part I [Notice Nos: FAA-N16; FFA-N03 And FAA-N11] 3-1 1. Notice On Recommendations On Investment Products [Notice No: FAA-N16] 2. Notice On Information To Clients And Product Information Disclosure [Notice No: FAA-N03] 3. Notice On Dual Currency Investments [Notice No: FAA-N11] Chapter 4 MAS Notices – Part II [Notice Nos: FAA-N02; FAA-N10; FAA-N12; FAA-N14; FAA-N20 And FAA-N26] 4-1 1. Notice On Appointment And Use Of Introducers By Financial Advisers [Notice No: FAA-N02] 2. Notice On Prohibited Representations Made By Persons Exempted Under Regulation 27(1)(d) Of The Financial Advisers Regulations (RG 2) [Notice No: FAA-N10] 3. Notice On Entry Requirements Of A Provisional Representative [Notice No: FAA-N12] 4. Notice On Reporting Of Misconduct Of Representatives By Financial Advisers [Notice No: FAA-N14] 5. Notice On Requirements For The Remuneration Framework For Representatives And Supervisors (“Balanced Scorecard Framework”) And Independent Sales Audit Unit [Notice No: FAA- Contents N20] 6. Notice on Competency Requirements for Representatives of Financial Advisers [Notice No: FAA-N26] Annexes Chapter 5 MAS Notice No: FAA-N06 - Prevention Of Money Laundering And Countering The Financing Of Terrorism – Financial Advisers 5-1 1. Introduction 2. Definitions 3. Underlying Principles 4. Assessing Risks And Applying A Risk-Based Approach 5. New Products, Practices And Technologies 6. Customer Due Diligence (“CDD”) 7. Simplified Customer Due Diligence 8. Enhanced Customer Due Diligence ii Copyright reserved by the Singapore College of Insurance Limited [V1.0] Table Of Contents 9. Reliance On Third Parties 10. Record Keeping 11. Personal Data 12. Suspicious Transactions Reporting 13. Internal Policies, Compliance, Audit And Training Appendix 5A Appendix 5B Chapter 6 MAS Notices – Part III [Notices Nos: FAA-N17; FAA-N18; FAA-N19 And FAA-N21] 6-1 1. Notice On Reporting Suspicious Activities & Incidents Of Fraud [Notice No: FAA-N17] 2. Notice On Technology Risk Management [Notice No: FAA-N18] 3. Notice on the Distribution of Direct Purchase Insurance Products [“DPI”] [Notice No: FAA-N19] 4. Notice On Cyber Hygiene [Notice No: FAA-N21] Chapter 7 MAS Notice Nos: MAS 307 7-1 1. Notice No: MAS 307 – Investment-linked Policies (ILPs) Chapter 8 MAS Guidelines – Part I [Guideline Nos: FAA-G01; FSG- G01; FAA-G04 & FAA-G05] And Circular No: CMI 01/2011 8-1 1. Guidelines On Criteria For The Grant Of A Financial Adviser’s Licence [Guideline No.: FAA-G01] 2. Guidelines On Fit And Proper Criteria [Guideline No: FSG-G01] Contents 3. Circular On Due Diligence Checks And Documentation In Respect Of The Appointment Of Appointed, Provisional And Temporary Representative [Circular No: CMI 01/2011] 4. Guidelines On Standards Of Conduct For Financial Advisers And Representatives [Guideline No: FAA-G04] 5. Guidelines On The Use Of The Term “Independent” By Financial Advisers [Guideline No: FAA-G05] Copyright reserved by the Singapore College of Insurance Limited [V1.0] iii RES 5: Rules, Ethics and Skills for Financial Advisory Services Chapter 9 MAS Guidelines – Part II [Guideline Nos: FAA-G09; FAA- G10; FAA-G11 And FAA-G14] 9-1 1. Guidelines On Structured Deposits [Guideline No: FAA-G09] 2. Guidelines On Switching Of Designated Investment Products [Guideline No: FAA-G10] 3. Guidelines On Fair Dealing – Board And Senior Management Responsibilities For Delivering Fair Dealing Outcomes To Customers [Guideline No: FAA-G11] 4. Guidelines On The Remuneration Framework For Representatives And Supervisors (“Balanced Scorecard Framework”), Reference Checks And Pre-Transaction Checks [Guideline No: FAA-G14] Annexes Chapter 10 MAS Guidelines – Part III [Guidelines Nos: FAA-G13; FAA-G15; FAA-G16; CMG-G02 And FSG-G02] 10-1 1. Guidelines On Addressing Conflicts Of Interest Arising From Issuing Or Promulgating Research Analyses Or Research Reports [Guideline No: FAA-G13] 2. Guidelines On The Online Distribution Of Life Policies With No Advice [Guideline No: FAA-G15] 3. Guidelines On Application For Approval Of Arrangements Under Regulation 32CB Of The Financial Advisers Regulations (RG2) [Guideline No: FAA-G16] 4. Guidelines On Provision Of Digital Advisory Services [Guideline No: CMG-G02] 5. Guidelines On Standards Of Conduct For Marketing And Distribution Activities By Financial Institutions [Guideline No: FSG- G02] Contents Chapter 11 Revised Code On Collective Investment Schemes 11-1 1. Introduction 2. Key Changes Introduced 3. The Trustee 4. The Manager 5. The Scheme 6. Accounts And Reports 7. Dealing And Valuation 8. Breaches 9. Recognised Schemes And Authorised Schemes Which Feed Into An Underlying Scheme 10. Core Investment Requirements For All Authorised Schemes Appendix 3 of the Code – Hedge Funds Appendix 4 of the Code – Capital Guaranteed Funds iv Copyright reserved by the Singapore College of Insurance Limited [V1.0] Table Of Contents Chapter 12 Securities Dealing – Market Conduct 12-1 1. Market Misconduct under the SFA 2. False Trading and Market Rigging Transactions 3. Securities Market Manipulation 4. False or Misleading Statements and Information 5. Fraudulently Inducing Persons to Deal in Capital Markets Products 6. Employment of Manipulative and Deceptive Devices 7. Dissemination of Information about Illegal Transactions 8. Insider Trading 9. Securities Hawking 10. Integrity of Capital Markets – Duties to Clients and Employers 11. Other Market Conduct Rules & Guidelines Chapter 13 Central Provident Fund 13-1 1. How You Can Help Your Clients Optimise Their CPF Savings 2. Central Provident Fund (CPF) Key Changes Introduced 3. Three Main Aims Of The CPF 4. Other Schemes Under The CPF 5. Legacy Planning Appendix 13A Part II: Ethics and Skills Chapter 14 Why Professional Ethics Matter 14-1 1. What Is Professional Ethics? 2. Ethics Is Not Compliance Contents 3. Why Professional Ethics Matter In The Financial Services Industry? 4. The Question Of Multiple Motivations 5. Conclusion Chapter 15 Professionalism 15-1 1. Characteristics Of A Professional 2. Basic Requirements For A Profession 3. Client Expectations For Professional Behavior 4. Responsibilities Of Financial Adviser Representatives As Professionals Copyright reserved by the Singapore College of Insurance Limited [V1.0] v RES 5: Rules, Ethics and Skills for Financial Advisory Services Chapter 16 Ethical Behavior 16-1 1. Codes Of Ethics And Standards In Financial Services Industry 2. Principle Of Integrity 3. Principle Of Objectivity 4. Principle Of Competence 5. Principle Of Fairness 6. Principle Of Confidentiality 7. Principle Of Professionalism 8. Principle Of Diligence 9. Benefits Of Ethical Behavior 10. Conclusion Chapter 17 Unethical Behavior 17-1 1. Reported Cases Of Unethical Behavior In The Financial Services Industry 2. Types of Unethical Behavior In The Financial Services Industry 3. Obstacles To Ethical Decision Making Chapter 18 Conflict Of Interest 18-1 1. Conflict Of Interest 2. Types Of Conflict Of Interest 3. Manifestations Of Conflict Of Interest 4. Biased Advice 5. Involuntary Cross-Selling 6. Excessive Trading, Churning And Twisting 7. Failure To Execute Contents 8. Insufficient Or Misleading Disclosures 9. Violation Of Privacy/Breach Of Confidentiality 10. Managing Conflict Of Interest 11. Fiduciary Standard 12. Suitability Standard 13. Fiduciary Standard Versus Suitability Standard Chapter 19 Fair Dealing 19-1 1. Fair Dealing 2. Importance Of Fair Dealing 3. Fair Treatment Of Clients 4. Principles Of Fair Dealing 5. Fair Dealing Outcomes vi Copyright reserved by the Singapore College of Insurance Limited [V1.0] Table Of Contents Chapter 20 Ethical Marketing & Sale Of Financial Products 20-1 1. An Ethically Sound Sales Process 2. Ethical Pitfalls In The Marketing And Sales Process 3. First Ethical Pitfall - Misrepresentation 4. Misrepresentation And Strategies Of Disclosure 5. Second Ethical Pitfall – The Unethical Misstep Of Selling Unsuitable Products 6. Third Ethical Pitfall – Conflict Of Interest 7. Ethical Marketing Chapter 21 Developing Customer – Representative Relationships 21-1 1. What Is Customer Service? 2. Different Customers Have Different Needs & Wants 3. Importance Of Good Client Service In Insurance 4. Client Service Standards 5. Interacting With Customers 6. Recognising Resistance & Common Forms Of Conflicts 7. General Guidelines For Interacting With Customers 8. Practical Aspects Of Handling Complaints 9. Factors Affecting The Attraction & Retention Of Customers 10. Importance Of Obtaining Feedback From Customers 11. Sales: Information, Communication And Opportunities 12. Post Sales: Develop Customer Loyalty & Retention Appendix Chapter 22 Fact Finding And Needs Analysis 22-1 Contents 1. Objectives Of Fact-Finding 2. Why Is Needs Analysis Important? 3. What To Ask In Fact Finding 4. General Information On Financial Adviser And Representative 5. Personal Information 6. Priorities And Objectives 7. Investment Profile 8. Cash Flow And Budget 9. Assets And Liabilities 10. Existing Insurance Portfolio 11. Needs Analysis 12. Representative’s Recommendation 13. Responsibilities Of Financial Adviser Representative 14. What Are The Skills Required In Fact Finding? 15. Seven Areas Of Fact Find To Focus On 16. The Structured Interview Appendix Copyright reserved by the Singapore College of Insurance Limited [V1.0] vii RES 5: Rules, Ethics and Skills for Financial Advisory Services Chapter 23 Analysing And Evaluation A Client’s Financial Status 23-1 1. Introduction 2. Statement Of Net Worth (Balance Sheet) 3. Statement Of Cash Flows 4. Personal Financial Ratios Chapter 24 Developing Appropriate Strategies And Solutions 24-1 1. Introduction 2. Product Recommendations Chapter 25 Presentation Of Analysis And Solutions To Customers 25-1 1. Presenting Your Recommendations Chapter 26 Reviewing Customers’ Portfolios 26-1 1. Introduction 2. Personal Circumstances 3. External Developments 4. Products Purchased Or Invested 5. Product Developments Chapter 27 Basic Financial Planning Guide 27-1 1. Introduction Contents 2. Basic Financial Planning Guide 3. FAQs for Consumers on Basic Financial Planning Guide 4. FAQs for Financial Institutions and their Representatives on Basic Financial Planning Guide viii Copyright reserved by the Singapore College of Insurance Limited [V1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives PART I CHAPTER 1 Financial Advisers Act And Financial Advisers Regulations – Financial Advisers And Representatives CHAPTER OUTLINE 1. Financial Advisers Act (FAA) 2. Financial Advisers Regulations (FAR) 3. Principles Of The FAA And FAR 4. Need For Financial Adviser’s Licence 5. Application For Grant Of Financial Adviser’s Licence 6. Exempt Persons 7. Use Of The Term “Financial Adviser” Or “Life Insurance Broker” 8. Use Of The Term “Independent” 9. Launch Of Representative Notification Framework (RNF) 10. Who Are Representatives? 11. Appointed Representative 12. Provisional Representative 13. Differences Between Appointed Representative And Provisional Representative 14. Notification Procedure 15. Power Of The MAS To Refuse Entry Or Revoke Or Suspend Status Of Appointed Or Provisional Representative 16. Power Of The MAS To Impose Conditions Or Restrictions 17. False Statements In Relation To Notification Of Appointed Or Provisional Representative 18. Appeals LEARNING OUTCOMES After reading this chapter, you should be able to:  Understand the principles and requirements of the FAA and the FAR, including the: - financial adviser’s licence - exempt persons - use of the terms “financial adviser”, “life insurance broker” and “independent” - Representative Notification Framework (RNF) - representatives - notification procedure - power of the MAS - penalties for false statements - appeals Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-1 RES 5: Rules, Ethics and Skills for Financial Advisory Services Table of Contents 1. FINANCIAL ADVISERS ACT (FAA)........................................................................... 4 2. FINANCIAL ADVISERS REGULATIONS (FAR)......................................................... 5 3. PRINCIPLES OF THE FAA AND FAR......................................................................... 5 A. Customers’ Interest.............................................................................................. 5 B. Consistency.......................................................................................................... 6 C. Accountability....................................................................................................... 6 D. Independence....................................................................................................... 6 FINANCIAL ADVISERS ACT 2001 (FAA) AND FINANCIAL ADVISERS REGULATIONS (FAR).......................................................................................................................... 7 4. NEED FOR FINANCIAL ADVISER’S LICENCE.......................................................... 7 A. Who Is A Financial Adviser?................................................................................ 7 B. Exempt Financial Advisers And Their Representatives..................................... 7 C. Excluded Financial Advisers (First Schedule Of The FAA)................................. 8 D. Types Of Financial Advisory Services (Second Schedule Of The FAA).......... 10 E. Products Regulated Under The FAA................................................................. 10 F. Excluded Products.............................................................................................. 11 5. APPLICATION FOR GRANT OF FINANCIAL ADVISER’S LICENCE....................... 11 A. Need For Professional Indemnity Insurance Policy.......................................... 12 B. Grounds For Refusal To Grant Financial Adviser’s Licence............................. 13 C. Grounds For Refusal To Grant Financial Adviser’s Licence Without Opportunity To Be Heard........................................................................................................ 13 D. Minimum Financial Requirements.................................................................... 13 6. EXEMPT PERSONS................................................................................................. 13 A. Prerequisites To Be Met By Exempt Persons................................................... 13 B. Representation Made By Exempt Persons........................................................ 14 C. Definitions Of Accredited And Qualified Investors........................................... 15 7. USE OF THE TERM “FINANCIAL ADVISER” OR “LIFE INSURANCE BROKER”.. 18 8. USE OF THE TERM “INDEPENDENT”................................................................... 19 9. LAUNCH OF REPRESENTATIVE NOTIFICATION FRAMEWORK (RNF)................ 21 A. Applicability Of RNF Regime............................................................................. 21 B. Public Register Of Representatives................................................................... 22 10. WHO ARE REPRESENTATIVES?............................................................................ 22 A. Representative To Act For Only One Principal................................................. 23 B. Types Of Representatives.................................................................................. 24 B1. Appointed Representatives.......................................................................... 24 1-2 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives B2. Provisional Representatives......................................................................... 24 C. Criteria To Be A Representative......................................................................... 24 D. Acting As Representative...................................................................................25 11. APPOINTED REPRESENTATIVE..............................................................................26 A. Criteria To Be An Appointed Representative.................................................... 26 B. Cessation Of Status Of Appointed Representative........................................... 27 12. PROVISIONAL REPRESENTATIVE.......................................................................... 28 A. Criteria To Be Appointed As A Provisional Representative............................. 28 B. Cessation Of Status Of Provisional Representative.......................................... 29 13. DIFFERENCES BETWEEN APPOINTED REPRESENTATIVE AND PROVISIONAL REPRESENTATIVE...................................................................................................30 14. NOTIFICATION PROCEDURE..................................................................................31 A. Documents To Be Lodged With The MAS......................................................... 31 B. Entry Into The Public Register............................................................................ 31 C. Retention Period.................................................................................................32 D. Undertaking Of Responsibilities For Provisional Representatives.................. 32 15. POWER OF THE MAS TO REFUSE ENTRY OR REVOKE OR SUSPEND STATUS OF APPOINTED OR PROVISIONAL REPRESENTATIVE............................................... 33 A. Conditions For Refusal To Enter Details In The Public Register...................... 33 16. POWER OF THE MAS TO IMPOSE CONDITIONS OR RESTRICTIONS................. 35 17. FALSE STATEMENTS IN RELATION TO NOTIFICATION OF APPOINTED OR PROVISIONAL REPRESENTATIVE.......................................................................... 35 18. APPEALS..................................................................................................................35 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-3 RES 5: Rules, Ethics and Skills for Financial Advisory Services 1. FINANCIAL ADVISERS ACT (FAA) 1.1 The mission of the Monetary Authority of Singapore is to sustain non- inflationary economic growth and promote a sound and progressive financial services sector. 1.2 On 1 October 2002, a new legislation known as the Financial Advisers Act 2001 came into operation to regulate the sale of investment products in Singapore. The FAA consolidates the previous regulatory regimes governing the provision of financial advisory services in respect of securities, futures and life policies, which were contained in three different Acts, namely, Securities Industry Act, Futures Trading Act (“FTA”) and Insurance Intermediaries Act, into a single piece of legislation. This has provided a consistent set of requirements and regulations for market intermediaries engaging in similar activities across investment products. 1.3 The FAA governs financial advisory activities in respect of investment products and the distribution or marketing of specific functionally similar investment products, namely life insurance policies and collective investment schemes, including unit trusts. It also governs the business conduct of persons providing financial advisory services. 1.4 The FAA has gone through several phases of reviews and amendments, so as to keep updated on the changes in the financial environment and the changing needs of the consumers. The latest amendments to the FAA (which can be found on the MAS website) were made to enhance MAS’ the Authority’ supervisory oversight of capital market services and financial advisers’ licence holders; and to further enhance the responsiveness of regulatory framework to market innovation. 1.5 In this study guide, we will cover highlights of the FAA and its subsidiary legislation. Financial Advisers and their representatives are advised to familiarise themselves with the entire legislation, a copy of which is available on the MAS website at: www.mas.gov.sg In this chapter, we will cover Parts I and II of the FAA and related regulations, and the rest of the Parts to the FAA in the next chapter. 1-4 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives 2. FINANCIAL ADVISERS REGULATIONS (FAR) 2.1 On 1 October 2002, the Financial Advisers Regulations (“FAR”) came into effect as a subsidiary legislation. It is prescribed by the MAS to give effect to the provisions of the FAA and sets out the rules on the application of the FAA. It provides for, among other things, exemptions from the requirements relating to licensing, approval or registration requirements, the application of the provisions under the FAA, and the revocation or variation of any condition or restriction under the FAA. 2.2 The MAS has also issued the Financial Advisers (Amendment) Regulations to amend the regulations in the existing FAR. As these amendments issued frequently, it is recommended to visit the MAS website for the latest amendments: http://www.mas.gov.sg 3. PRINCIPLES OF THE FAA AND FAR 3.1 The mission of the MAS is to sustain non-inflationary economic growth and promote a sound and progressive financial services sector. 3.2 The principles underpinning the FAA and the FAR will be discussed in the following subsections. A. Customers’ Interest 3.3 Financial Advisers must first and foremost, give due regard to the interests of the customers. The provision of financial advice must be conducted in a fair, professional and ethical manner. One practical application of this principle is that financial advisers are required to have a reasonable basis for their recommendations. This is to ensure that due consideration has been given to the person’s investment objectives, financial situation and particular needs. 3.4 The first element under this concept is the “Know Your Client” requirement in respect of his financial objectives, risk tolerance, employment status, financial situation, current investment portfolio and number of dependants. Subsequently, in conducting a Needs Analysis process, a financial adviser representative should analyse the information provided by the client, and identify appropriate investment products for the client. Proper documentation and record keeping of client information and recommendations should underpin this process to meet the objective of providing good advice to the customers. Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-5 RES 5: Rules, Ethics and Skills for Financial Advisory Services B. Consistency 3.5 The FAA is an integrated regulatory framework. Its scope cuts across a number of financial services industries involved in the provision of financial advice relating to investment products. The concept of consistency presents itself in at least two ways. Firstly, consistency must apply to processes for the same product. This means for the same investment product, such as life insurance, advisers from different distribution channels, would be subject to the same rules and standards. Secondly, consistency would apply to similar products. The sale of functionally similar products, such as single premium investment-linked policies and unit trusts, would be subject to similar rules and standards. C. Accountability 3.6 The principle of accountability is essential to ensure that there is a higher-level entity or person who would be accountable for the professional and ethical conduct of a representative of the financial adviser. This principle is captured in the “Representative To Act For Only One Principal” rule under the FAA. Each financial adviser representative can represent only one principal. Hence, if a person is a tied agent, he cannot be a licensed financial adviser representative at the same time. The principal is responsible for developing, supervising and monitoring the conduct of its representatives at all times, including aspects of market conduct and competence. This is to ensure that there is absolute clarity to the investors as to the status of the financial adviser representative. In this way, consumers will understand who will be accountable for his professional behaviour as a financial adviser representative. D. Independence 3.7 The concept of independence has been considered by many to be an important condition for customer interests. However, experience from other established markets has shown that this has not been borne out. Therefore, it has been considered more important that representatives of financial advisers put customers’ interests at the forefront by giving good objective advice and be guided by the concept of reasonable basis in providing advice. Consequently, the principles and guidelines on the determination of “independent” have been laid down in Regulation 21 of the FAR and the “Guidelines On The Use Of The Term “Independent” By Financial Advisers” [Guideline No: FAA-G05]. 1-6 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives FINANCIAL ADVISERS ACT 2001 (FAA) AND FINANCIAL ADVISERS REGULATIONS (FAR) 4. NEED FOR FINANCIAL ADVISER’S LICENCE 4.1 Under Section 6(1) of the FAA, no person shall act as a financial adviser in Singapore in respect of any financial advisory service, unless he is authorised to do so in respect of that financial advisory service by a financial adviser’s licence, or is an exempt financial adviser. Please refer to Section 4B of this chapter for details on exempt financial advisers. 4.2 Under Section 18(1) of the FAA, no person shall hold himself out to be a financial adviser unless he is a licensed financial adviser, an exempt financial adviser or a person specified in the First Schedule. 4.3 In the next few sections of this chapter, we will further explain: (a) who is a financial adviser (FA); (b) who is an exempt financial adviser; and (c) who is an excluded financial adviser under the FAA. 4.4 We will then list the types of financial advisory services regulated under the FAA. A. Who Is A Financial Adviser? 4.5 Under Section 2(1) of the FAA, a “financial adviser” means a person who carries on a business of providing any financial advisory service, but does not include any person specified in the First Schedule. 4.6 “Person” mentioned above refers to a corporation and not an individual. B. Exempt Financial Advisers And Their Representatives 4.7 Section 20(1) of the FAA provides that the following persons shall be exempted from holding a financial adviser’s licence to act as a financial adviser in Singapore in respect of any financial advisory service: (a) A bank licensed under the Banking Act 1970; (b) A merchant bank licensed under the Banking Act 1970; (c) A company or co-operative society licensed under the Insurance Act 1996; Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-7 RES 5: Rules, Ethics and Skills for Financial Advisory Services (d) A holder of a capital markets services licence under the Securities and Futures Act 2001; (e) A finance company which has been granted an exemption from Section 25(2) of the Finance Companies Act 1967 to carry on a business of providing any financial advisory service; (f) An approved exchange, a recognised market operator, or an approved holding company, in respect of the provision of any financial advisory service that is solely incidental to its operation of an organised market, or to its performance as an approved holding company, as the case may be; and (g) Such other persons or classes of persons as may be prescribed. C. Excluded Financial Advisers (First Schedule Of The FAA) 4.8 Under the First Schedule of the FAA, the following persons are defined as “excluded financial advisers” and do not fall within the definition of “financial adviser” under the FAA: (a) (i) Any advocate and solicitor (ii) Any Singapore law practice, Joint Law Venture, Formal Law Alliance or Qualifying Foreign Law Practice, as defined in section 2(1) of the Legal Profession Act 1966; or (iii) Any public accountant who is registered under the Accountants Act 2004, or accounting corporation which is approved under that Act, whose carrying on of the business of providing any financial advisory service is solely incidental to its legal or accounting practice, as the case may be. (b) Any company licensed under the Trust Companies Act 2005 whose carrying on of the business of providing any financial advisory services is solely incidental to its carrying on of the business for which it is licensed under that Act. (c) Any person who is a proprietor of a newspaper and holder of a permit under the Newspaper and Printing Presses Act 1974, where: (i) the newspaper is distributed generally to the public in Singapore; (ii) any advice given, or analysis or report issued or promulgated, is given, issued or promulgated only through that newspaper; (iii) that person receives no commission or other consideration, apart from any fee received from subscription to or purchase of the newspaper, for giving the advice, or for issuing or promulgating the analysis or report; and 1-8 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives (iv) the advice is given, or the analysis or report is issued or promulgated, solely as incidental to the conduct of that person’s business as a newspaper proprietor. (d) Any person who owns operates or provides an information service through an electronic, or a broadcasting or telecommunications medium, where: (i) the service is generally available to the public in Singapore; (ii) any advice given, or analysis or report issued or promulgated, is given, issued or promulgated only through that service; (iii) that person receives no commission or other consideration, apart from any fee received from subscription to the service, for giving the advice, or for issuing or promulgating the analysis or report; and (iv) the advice is given, or the analysis or report is issued or promulgated, solely as incidental to that person’s ownership, operation or provision of that service. (e) Any person who provides credit rating services, where any analysis or report issued or promulgated by that person: (i) is issued or promulgated solely as incidental to the conduct of that person’s business of providing credit rating services; and (ii) does not contain any specific recommendation with respect to the acquiring of, disposing of, subscribing for, or underwriting of, any capital markets products. (f) Any public statutory corporation established under any Act in Singapore. (g) Any approved trustee under Division 2 of Part 13 of the Securities and Futures Act 2001. (h) The Official Assignee in exercising his or her powers under the Insolvency, Restructuring and Dissolution Act 2018. (i) The Public Trustee in exercising his or her powers under the Public Trustee Act 1915. (j) Any person acting in relation to a company as its liquidator, provisional liquidator, receiver, receiver and manager, or judicial manager. (k) Any foreign company (within the meaning of Section 4(1) of the Companies Act 1967 which – (i) provides all its financial advisory services under one or more arrangements that are — Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-9 RES 5: Rules, Ethics and Skills for Financial Advisory Services (a) between the foreign company (on the one hand) and its related corporation which is licensed under this Act or exempt under section 20 (other than subsection (1)(f) and (g)) (on the other hand); and (b) approved by the Authority; and (ii) is not exempt under regulation 5(2) of the Financial Advisers (Exemption for Cross‑Border Arrangements) (Foreign Related Corporations) Regulations 2021 in respect of the provision of any of those financial advisory services. D. Types Of Financial Advisory Services (Second Schedule Of The FAA) 4.9 The types of financial advisory services regulated under the FAA are as follows: (a) Advising others, either directly or through publications or writings, and whether in electronic, print or other form, concerning any investment product, other than: (i) in the manner set out in point (b) below; or (ii) advising on corporate finance within the meaning of the Securities & Futures Act 2001. (b) Advising others by issuing or promulgating research analyses or research reports, whether in electronic, print or other form, concerning any investment product. (c) (Deleted by S658/2018 wef 08/10/2018) (d) Arranging of any contract of insurance in respect of life policies, other than a contract of reinsurance. E. Products Regulated Under The FAA 4.10 The range of products under the ambit of the FAA includes only products that are of an investment nature. Section 2(1) of the FAA provides that “investment product” means: (a) any capital market products 1; (b) spot foreign exchange contracts other than for the purposes of leveraged foreign exchange trading; (c) any life policy; or 1 “Capital markets products” means any securities, units in a collective investment scheme, derivatives contracts, spot foreign exchange contracts for the purposes of leveraged foreign exchange trading, and such other products as the MAS may prescribe as capital markets products. 1-10 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives (d) any other products as may be prescribed. 4.11 Under the Financial Advisers (Structured Deposits – Prescribed Investment Product and Exemption) Regulations, structured deposit has been classified as an investment product with effect from 2 December 2005. F. Excluded Products 4.12 The following products are excluded from the definition of investment products: (a) General insurance policies; (b) Deposit-taking products; and (c) Loans and mortgages. 4.13 General insurance policies (as opposed to life insurance policies) are not considered investment products as they are consumption-based. Deposit-taking products offered by banks are excluded as such products are at the low end of the risk spectrum and are well understood. Loans and mortgages do not have any investment element and relates more to liability management. 5. APPLICATION FOR GRANT OF FINANCIAL ADVISER’S LICENCE 5.1 This section of the chapter deals with application and the minimum financial requirements for grant of a financial adviser’s licence. 5.2 Section 7(1) of the FAA read with Regulation 6 and 7 of the FAR provides that an application for the grant of a financial adviser’s licence shall be made to the MAS in Form 1 and manner as may be prescribed and accompanied by a non-refundable application fee of a prescribed amount, which shall be paid in the manner as specified by the MAS. Form 1 is available on the MAS website. 5.3 In assessing an application for a financial adviser's licence, the MAS takes into consideration the following factors: (a) track record, management expertise and financial soundness of the applicant and its parent company or major shareholders; (b) ability to meet the minimum financial requirements and professional indemnity insurance requirements as prescribed under the FAA (also see Sections A and D below); Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-11 RES 5: Rules, Ethics and Skills for Financial Advisory Services (c) strength of internal compliance systems; (d) business plans and projections; and (e) fitness and propriety. In respect of factor (e) above, the applicant shall satisfy the MAS that: (i) it is a fit and proper person to be licensed; (ii) all of its directors and chief executive officer are fit and proper persons to hold the office; and (iii) all of its substantial shareholders and representatives are fit and proper persons. 5.4 With effect from 26 November 2010, all existing financial adviser’s licences would no longer have to be renewed. Instead, once issued the licence would continue to be valid, subject to the payment of an annual licence fee, unless:  the licence holder ceases to carry on business in any of the regulated activities to which the licence relates;  the licence lapses (due to the winding-up of the licence holder or other prescribed circumstances); or  the licence is revoked or suspended by the MAS. 5.5 Additional information on the criteria for the grant of a financial adviser’s licence, as well as professional indemnity requirements, can also be found in a later chapter of this study guide which covers the FAA-G01 (Guidelines On Criteria For The Grant Of A Financial Adviser’s Licence). A. Need For Professional Indemnity Insurance Policy 5.6 Section 8(2)(b) of the FAA states that “Professional Indemnity Insurance policy” means a contract of insurance with an insurer under which a person is indemnified in respect of the liabilities arising out of or in the course of his business as a financial adviser. 5.7 This is supported by Section 9(1) of the FAA which stipulates that a licensed financial adviser shall: (a) maintain, at all times during the currency of its licence, such minimum financial requirements or such other requirements as may be prescribed under Section 8(1)(b) of the FAA; and 1-12 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives (b) have in force, at all times during the currency of its licence, a Professional Indemnity Insurance policy, the cover of which is consistent with such limit and deductible requirements as may be prescribed, or any other measure as may be approved by the Authority in lieu of a Professional Indemnity Insurance policy, under Section 8(1)(c) of the FAA. B. Grounds For Refusal To Grant Financial Adviser’s Licence 5.8 Section 8(1) of the FAA states that the MAS may refuse an application for the grant of a financial adviser’s licence. C. Grounds For Refusal To Grant Financial Adviser’s Licence Without Opportunity To Be Heard 5.9 Section 8(4) of the FAA stipulates that the Authority may refuse an application for the grant of a financial adviser’s licence on any of the following grounds without giving the applicant an opportunity to be heard: (a) the applicant is in the course of being wound up or otherwise. D. Minimum Financial Requirements 5.10 Regulation 15 of the FAR states that for the purposes of Section 8(1)(b) of the FAA, the applicant shall meet the following minimum financial requirements for the grant of a financial adviser’s licence. 6. EXEMPT PERSONS 6.1 The FAA also provides for a category of persons to be exempted from holding a financial adviser’s licence. 6.2 In the case of an exempt fund manager who is also an exempt financial adviser, the total number of qualified investors and accredited investors served should not exceed 30 in total. A. Prerequisites To Be Met By Exempt Persons 6.3 Under the Securities and Futures (Licensing and Conduct of Business) Regulations (Rg 14A) [“SFR”] and the FAR (Rg 14A), it is a requirement for an exempt person to be fit and proper. In this regard, an exempt person must be able to satisfy and demonstrate to the MAS that it meets the fit and proper criteria in respect of honesty, integrity and reputation; competence and capability; and financial soundness, as Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-13 RES 5: Rules, Ethics and Skills for Financial Advisory Services stated in the Guidelines on Fit and Proper Criteria [Guidelines No: FSG- G01]. The fit and proper requirements have to be met on an on-going basis, and are also applicable to the exempt person's substantial shareholders or persons who have decision-making power in the company; directors or equivalent persons; and representatives who conduct regulated activities on behalf of the exempt person. 6.4 As required under the Second Schedule to the SFR and the FAR, an exempt person must maintain its operations in Singapore, and have adequate resources, including compliance arrangements commensurate with the size and scale of its business activities in Singapore. To demonstrate that it has meaningful operations in Singapore and is able to satisfy the competence and capability requirement, an exempt person is expected to operate from an office premise in Singapore and is strongly encouraged to employ a minimum of two professionals, each with at least five years of relevant working experience in reputable jurisdictions. An exempt person should also have at least one resident CEO or executive director who exercises management oversight of its operations. 6.5 In assessing honesty, integrity and reputation, the MAS takes into account amongst other considerations - an exempt person's and its key persons' or representatives' disciplinary and compliance records in Singapore and other jurisdictions. To demonstrate minimum financial viability, an exempt person is expected to ensure that it is able to pay its debts in full as they fall due and that the value of its assets is not less than the value of its liabilities (including contingent liabilities) at all times. 6.6 Please note that the fulfilment of the minimum expectations illustrated above does not necessarily imply that an entity satisfies all the criteria expected of an exempt person. The MAS reserves the right to require an exempt person to fulfil additional requirements or put in place further safeguards to take into account any other considerations or risks specific to the exempt person and its business model. B. Representation Made By Exempt Persons 6.7 An exempt person, including its representatives, cannot represent itself, nor cause to be represented, to any person as being licensed, regulated, supervised, or registered by the MAS, whether verbally or in writing. 1-14 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives C. Definitions Of Accredited And Qualified Investors 6.8 An “accredited investor” as stated in: (I) Section 4A(1)(a) of the SFA refers to: (a) an individual: (i) whose net personal assets exceed S$2 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount; or (ii) whose financial assets (net of any related liabilities) exceed in value $1 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount, where “financial asset” means - (A) a deposit as defined in section 4B of the Banking Act; (B) an investment product as defined in section 2(1) of the Financial Advisers Act; or (C) any other asset as may be prescribed by regulations made under section 341; or (iii) whose income in the preceding 12 months is not less than S$300,000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount; (b) a corporation with net assets exceeding S$10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by: (i) the most recent audited balance-sheet of the corporation; or (ii) where the corporation is not required to prepare audited accounts regularly, a balance-sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance-sheet, which date shall be within the preceding 12 months; (c) the trustee of such trust as the Authority may prescribe, when acting in that capacity; or (d) such other person as the Authority may prescribe; (II) Regulation 2 of the Securities And Futures (Classes Of Investors) Regulations 2018 refers to: Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-15 RES 5: Rules, Ethics and Skills for Financial Advisory Services (1) For the purposes of section 4A(1)(a)(iii) of the Act, the following trusts are prescribed: (a) any trust all the beneficiaries of which are accredited investors within the meaning of section 4A(1)(a)(i), (ii) or (iv) of the Act; (b) any trust all the settlors of which — (i) are accredited investors within the meaning of section 4A(1)(a)(i), (ii) or (iv) of the Act; (ii) have reserved to themselves all powers of investment and asset management functions under the trust; and (iii) have reserved to themselves the power to revoke the trust; (c) any trust the subject matter of which exceeds $10 million (or its equivalent in a foreign currency) in value. (2) For the purposes of section 4A(1)(a)(iv) of the Act, the following persons are prescribed: (a) an entity (other than a corporation) with net assets exceeding $10 million (or its equivalent in a foreign currency) in value; (b) a partnership (other than a limited liability partnership) in which every partner is an accredited investor; (c) a corporation the entire share capital of which is owned by one or more persons, all of whom are accredited investors; (d) a person who holds a joint account with an accredited investor, in respect of dealings through that joint account. (3) To avoid doubt, any reference to “trust” in paragraph (1)(a), (b) and (c) includes a bare trust. 6.9 A “qualified investor”, as stated in the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations refers to: (a) an accredited investor, other than: (i) one who is a participant in a collective investment scheme referred to in paragraph (b); (ii) one who is a holder of a unit in a closed-end fund, or in an arrangement mentioned in paragraph (aa) of the definition of “closed-end fund” in section 2(1) of the Act as mentioned in paragraph (c); 1-16 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives (iii) one which is a corporation mentioned in Section 4A(1)(a)(ii) of the Act or an entity mentioned in Regulation 3(c) of the Securities and Futures (Classes of Investors) Regulations 2018: (A) which is related to or controlled by a person exempted from the requirement to hold a capital markets services licence to carry on business in fund management under paragraph 5(1)(i), or a key officer or substantial shareholder of such person; and (B) the shares or debentures of which are, after 28 May 2008, the subject of an offer or invitation for subscription or purchase made to any person who is not an accredited investor; or (iv) a corporation or an entity which is a collective investment scheme or a closed-end fund the units of which are, after 28 May 2008, the subject of an offer or invitation made to any person who is not an accredited investor; (b) a collective investment scheme the units of which are the subject of an offer or invitation for subscription or purchase made — (i) in Singapore only to accredited investors, to institutional investors, or to both accredited investors and institutional investors; or (ii) elsewhere if, after 28 May 2008, such offer or invitation is made only to accredited investors (or investors in an equivalent class under the laws of the country or territory in which the offer or invitation is made), to institutional investors, or to both accredited investors and institutional investors; (c) a closed-end fund or an arrangement mentioned in paragraph (aa) of the definition of “closed-end fund” in Section 2(1) of the Act, the units of which are the subject of an offer or invitation for subscription or purchase made only to accredited investors (or investors in an equivalent class under the laws of the country or territory in which the offer or invitation is made), to institutional investors, or to both accredited investors and institutional investors; (d) an institutional investor, other than a collective investment scheme; or (e) a limited partnership, where the limited partners comprise solely of accredited investors (or investors in an equivalent class under the laws of the country or territory in which the partnership is formed), of institutional investors, or of both accredited investors and institutional investors. Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-17 RES 5: Rules, Ethics and Skills for Financial Advisory Services (Note: An exempt person is required to conduct its own due diligence to verify that its clients are of qualified or accredited status. The due diligence checks should be supported by documentary evidence for proper audit trail). 7. USE OF THE TERM “FINANCIAL ADVISER” OR “LIFE INSURANCE BROKER” 17(1) No person, other than: (a) licensed financial adviser; (b) an exempt financial adviser; or (c) a person, or a person belonging to a class of persons, approved by the Authority, shall – (i) use the words “financial adviser” in any language, or any other word indicating that that person carries on business as a financial adviser, in the name, description or title under which it carries on business in Singapore; or (ii) make any representation to such effect in any bill head, letter paper, notice, advertisement, publication or writing, whether in electronic, print or other form. (2) Nothing in this section shall prohibit — (a) an appointed or provisional representative of a licensed financial adviser or exempt financial adviser; or (b) a representative of an exempt financial adviser referred to in section 20(1)(f) or (g), from using the words “financial adviser” together with the word “representative” or any other word indicating that he is a representative of a financial adviser. (3) No person, other than — (a) a licensed financial adviser which is authorised by its licence to provide any financial advisory service in respect of life policies; (b) an exempt financial adviser which provides any financial advisory service in respect of life policies; or (c) a person, or a person belonging to a class of persons, approved by the Authority, shall – (i) use the words “life insurance broker” or any of its derivatives in any language, or any other word indicating that that person carries on business of providing any financial advisory service in 1-18 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives respect of life policies, in the name, description or title under which he carries on business in Singapore; or (ii) make any representation to such effect in any bill head, letter paper, notice, advertisement, publication or writing, whether in electronic, print or other form. (4) Nothing in this section shall prohibit — (a) an appointed or provisional representative of a licensed financial adviser or exempt financial adviser which provides any financial advisory service in respect of life policies; or (b) a representative of an exempt financial adviser referred to in section 20(1)(f) or (g) which provides any financial advisory service in respect of life policies, from using the words “life insurance broker” together with the word “representative” or any other word indicating that he is a representative of a financial adviser providing any financial advisory service in respect of life policies. (5) Any person who contravenes subsection (1) or (3) shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $12,500 and, in the case of a continuing offence, to a further fine not exceeding $1,250 for every day or part thereof during which the offence continues after conviction. 8. USE OF THE TERM “INDEPENDENT” 21.— (1) No licensed financial adviser or exempt financial adviser shall use the word “independent” or any of its derivatives in any language, or any other word or expression in any language that is of like import to “independent” — (a) in the name, description or title under which it carries on business in Singapore; (b) to promote or advertise its services; or (c) in respect of its provision of any financial advisory service, unless — (i) the financial adviser does not receive any commission or other benefit from a product provider which may create product bias and does not pay any commission to or confer other benefit upon its representatives which may create product bias; Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-19 RES 5: Rules, Ethics and Skills for Financial Advisory Services (ii) the financial adviser operates free from any direct or indirect restriction relating to any investment product which is recommended; and (iii) the financial adviser operates without any conflict of interest created by any connection to or association with any product provider. (2) Where a licensed financial adviser or an exempt financial adviser — (a) is prohibited from using the word “independent” under paragraph (1); or (b) is not prohibited from using the word “independent” under paragraph (1) but decides not to do so, it shall ensure that its representatives do not use the word “independent” or any of its derivatives in any language, or any other word or expression in any language that is of like import to “independent” in the manner specified in paragraph (1)(a), (b) or (c). (3) No representative of a licensed financial adviser or an exempt financial adviser shall use the word “independent” or any of its derivatives in any language, or any other word or expression in any language that is of like import to “independent”, in acting as a representative of the financial adviser if the financial adviser has informed him that it may not do so. (4) Any financial adviser which contravenes paragraph (1) shall be guilty of an offence. (4A) Any financial adviser which, without reasonable excuse, contravenes paragraph (2) shall be guilty of an offence. (5) Any representative who contravenes paragraph (3) shall be guilty of an offence. 1-20 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives 9. LAUNCH OF REPRESENTATIVE NOTIFICATION FRAMEWORK (RNF) 9.1 The MAS launched the Representative Notification Framework [“RNF”] on 26 November 2010. This took the form of amendments to the FAA and FAR as well as the FAA Notices and Guidelines. Under the RNF, financial institutions intending to appoint a financial adviser representative will have to lodge a notice of intent with the MAS and provide a “fit and proper” certification in respect of that representative. 9.2 Before 26 November 2010, the licensing and regulatory regime for representatives was operated on the basis that each representative of a financial adviser has to be himself licensed to engage in the activity for which his company (the principal) holds a licence from the MAS. From 26 November 2010, with the introduction of the new RNF representatives no longer need to do so. 9.3 The onus is now on the principals to accept only fit and proper individuals as their representatives. The change also brings the regulatory regime in line with the prevailing regime for representatives that are employed by exempt financial institutions under the FAA. It also places a heavier emphasis on the role and responsibilities of principals to ensure that their representatives are fit and proper. A. Applicability Of RNF Regime 9.4 The RNF Regime is applicable to individuals carrying out financial advisory activities as representatives of: (a) licensed financial advisers; and (b) financial advisers which are exempted by the FAA from having to apply for a licence (this category includes banks, merchant banks, finance companies, insurance companies, insurance brokers registered under the Insurance Act and holders of a capital markets services licence under the Securities and Futures Act 2001. 9.5 Please refer to later sections in this chapter which cover Section 23 of the FAA. These provisions relate to appointed representatives; similar provisions also exist for provisional representatives. 9.6 The RNF regime does not apply to entities which are exempt from licensing pursuant to regulations issued under the FAA. Please refer to Section 20 of the FAA. Examples include fund managers who serve no more than 30 qualified investors or financial advisers who serve no more than 30 accredited investors. Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-21 RES 5: Rules, Ethics and Skills for Financial Advisory Services B. Public Register Of Representatives 9.7 Under the new RNF, representatives providing financial advice will have their names recorded on a public register of representatives. The MAS will cease to issue licences to representatives of licensed financial advisers. Underpinning the new framework is the Public Register of Representatives (“The Public Register”) established under the new Section 73 of the FAA for representatives engaged in financial advisory services. Details of what is included in the register are listed below. 9.8 Under Section 73(1) of the FAA, the MAS shall keep in such form as it thinks fit records of the following information of each appointed representative and provisional representative: (a) his or her name; (b) the name of his or her current principal and every past principal (if any); (c) the current and past types of financial advisory service provided by him or her, and the date of commencement and cessation (if any) of such service; (d) where the business of the principal for which he or she acts is carried on under a name of style other than the name of the principal, the name or style under which the business is carried on; (e) disciplinary proceedings or other action taken by the MAS against him and published under Section 77 of the FAA; and (f) such other information as may be prescribed. 9.9 The Public Register is accessible to the public through the MAS website. The Public Register is consistent with the MAS stated philosophy of promoting greater transparency within the financial sector, and encourages consumers to take their own initiative in verifying the status of the representatives whom they are dealing with. 10. WHO ARE REPRESENTATIVES? 10.1 Representatives are individuals who actually perform the activities that their principals are engaged in and for which they are regulated by the MAS under the FAA. 10.2 Section 2(1) of the FAA states that “representative” means a person, by whatever name called, in the direct employment of, or acting for, or 1-22 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives by arrangement with, a financial adviser, who performs on behalf of the financial adviser any financial advisory service, whether or not he is remunerated, and whether his remuneration, if any, is by way of salary, wages, commission or otherwise, and includes any officer of the financial adviser who performs for the financial adviser any financial advisory services whether or not he is remunerated, and whether his remuneration, if any, is by way of salary, wages, commission or otherwise. A. Representative To Act For Only One Principal 10.3 Section 27(1) of the FAA states that, unless otherwise approved by the MAS in writing, no appointed representative or provisional representative shall at any one time be a representative of more than one principal. 10.4 However, an appointed representative may be a representative of more than one principal if the principals are related corporations. 10.5 The MAS may request information or documents, as considered necessary in relation to the application for approval, to be provided to them. 10.6 The objectives of this rule are two-fold: (a) to secure clarity for the investors about the status of the representatives, the financial advisers that they represent, and more importantly, where the responsibility rests for complaints and redresses; and (b) to ensure that the financial advisers closely monitor and supervise their representatives at all times. 10.7 Any person who contravenes the above rule shall be guilty of an offence and shall be liable on conviction to a fine not exceeding S$25,000 or to imprisonment for a term not exceeding 12 months or to both and, in the case of a continuing offence, to a further fine not exceeding S$2,500 for every day or part thereof during which the offence continues after conviction. Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-23 RES 5: Rules, Ethics and Skills for Financial Advisory Services B. Types Of Representatives 10.8 The FAA provides for two classes of representatives – appointed and provisional. B1. Appointed Representatives 10.9 They are persons who meet in full the entry and examination requirements prescribed by the MAS. These requirements are prescribed in the “Notice on Minimum Entry and Examination Requirements for Representatives of Licensed Financial Advisers and Exempt Financial Advisers (Notice No: FAA-N13); or B2. Provisional Representatives 10.10 They are persons who meet the entry requirements, but who have not yet passed the relevant examinations. As a policy, they are given a grace period of three months to pass the requisite examinations. This category of representatives was introduced to accommodate the relocation of experienced individuals currently licensed in an overseas jurisdiction. Do refer to a later chapter of this study guide which covers the Notice on Entry Requirements of a Provisional Representative, Notice No: FAA-N12. C. Criteria To Be A Representative 10.11 Individuals who wish to provide financial advisory services on behalf of a licensed financial adviser or an exempt financial adviser under Section 20(1)(a) to (e) of the FAA are required to be appointed as an appointed or provisional representative in respect of that type of financial advisory service. 10.12 Individuals must fulfil the following requirements before they can be an appointed representative: (a) be at least 21 years old; (b) satisfy the minimum academic qualification and examination requirements as prescribed in the Notice on Minimum Entry and Examination Requirements for Representatives of Licensed Financial Advisers and Exempt Financial Advisers [Notice No: FAA - N13]; (c) satisfy the fit and proper criteria set out in the Guidelines on Fit and Proper Criteria [Guideline No: FSG-G01] issued by the MAS; and (d) any other criteria stipulated by the MAS. 1-24 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives D. Acting As Representative 10.13 No individual will be allowed to act as a representative or to hold himself or herself out as a representative of a financial adviser unless: (a) he meets the entry and examination requirements specified by the MAS for the relevant type of financial advisory service; and (b) his name is entered in the Public Register for the FAA. 10.14 Section 22(1) of the FAA provides that no person shall act as a representative in respect of any type of financial advisory service or hold himself or herself out as doing so, unless the person is: (a) an appointed or provisional representative in respect of that type of financial advisory service; or (b) a representative of an exempt financial adviser referred to in Section 20(1)(f) or (g) of the FAA, in so far as the type, scope and manner in which the financial advisory service provided are the same as the exempt financial adviser. 10.15 The MAS may exempt any person or class of persons from the above requirements, subject to such conditions or restrictions as may be imposed by the MAS. 10.16 An individual who contravenes the above rule commits an offence. Under Section 22(8) of the FAA, he will be liable on conviction to a fine not exceeding S$25,000 or to imprisonment for a term not exceeding 12 months or to both and, in the case of a continuing offence, to a further fine not exceeding S$2,500 for every day or part thereof during which the offence continues after conviction. 10.17 Section 22(5) of the FAA provides that a principal shall not permit any individual to provide any type of financial advisory service on its behalf unless: (a) the individual is an appointed or provisional representative in respect of that type of financial advisory service; or (b) the principal is an exempt financial adviser under Section 20(1)(f) or (g) of the FAA and — (i) the type and scope of the financial advisory service provided by the individual are within the type and scope of, or are the same as, that provided by the exempt financial adviser (in his capacity as an exempt financial adviser); and (ii) the manner in which the individual provides that type of financial advisory service is the same as the manner in which Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-25 RES 5: Rules, Ethics and Skills for Financial Advisory Services the exempt financial adviser (in his capacity as an exempt financial adviser) provides that type of financial advisory service. 10.18 Likewise, a licensed financial adviser (as principal) commits an offence if it permits any such individual to carry on business in any type of financial advisory service. Under Section 22(9) of the FAA, the penalty for the principal is a fine not exceeding S$50,000 and in the case of a continuing offence, to a further fine not exceeding S$5,000 for every day or part thereof during which the offence continues after conviction. 11. APPOINTED REPRESENTATIVE A. Criteria To Be An Appointed Representative 11.1 Section 23(1) of the FAA provides that an appointed representative in respect of a type of financial advisory service is an individual: (a) who satisfies such entry and examination requirements for that type of financial advisory service, the fact of which has been notified to the MAS either in the document lodged under Section 26(1) of the FAA, or under Section 24(5) of the FAA within the time prescribed under that provision; (b) whose name is entered in the public register of representatives as an appointed representative; (c) whose status as an appointed representative has not currently been revoked or suspended and who has not currently been prohibited by the MAS from providing that type of financial advisory service; (d) whose entry in the public register of representatives indicates that he is appointed to provide that type of financial advisory service and does not indicate that he has ceased to be so; and (e) whose principal: (i) is licensed to provide that type of financial advisory service; or (ii) provides that type of financial advisory service in its capacity as a person exempted from the requirement to hold a financial adviser’s licence under Section 20(1)(a), (b), (c), (d) or (e) of the FAA. 11.2 For the purpose of subsection (a) above, the MAS shall specify the examination requirements for each type of financial advisory service. 1-26 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives B. Cessation Of Status Of Appointed Representative 11.3 Section 23(4) of the FAA states that an individual ceases to be an appointed representative in respect of any type of financial advisory service on the date: (a) the individual ceases to be the principal’s representative or to provide that type of financial advisory service on behalf of the principal, the fact of which has been notified to the MAS; (b) the individual’s principal ceases to provide that type of financial advisory service; (c) the licence of the individual’s principal is revoked or lapses or a prohibition order under Section 68 of the FAA is made against the individual’s principal prohibiting it from providing that type of financial advisory service; (d) the individual dies; or (e) of the occurrence of such other circumstances as the MAS may prescribe. 11.4 Regulation 8A of the FAR provides that for the purpose of Section 23(4)(e) of the FAA, unless the MAS has revoked the status of an individual as an appointed representative under Section 30(1) of the FAA or suspended that status under Section 30(2)(a) of the FAA, the individual shall cease to be an appointed representative in respect of all types of financial advisory service if: (a) before the end of the period of 6 months (or such longer period as the MAS may allow in any particular case) starting on the date on which the individual’s name was entered in the public register of representatives as an appointed representative, the appointed representative has not commenced to act as a representative in at least one of the financial advisory services that the individual was appointed to provide as a representative; or (b) the appointed representative: (i) has ceased to act as a representative; and (ii) has not resumed acting as a representative for a continuous period of one month from the date of cessation, and his principal has not notified the MAS. 11.5 Section 23(5) of the FAA states that an individual shall not be treated as an appointed representative during the period in which the licence of his principal is suspended. Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-27 RES 5: Rules, Ethics and Skills for Financial Advisory Services 11.6 Section 23(8) of the FAA read with Regulation 12A of the FAR provides that a principal shall, no later than the next business day after the day: (a) an individual ceases to be his or her representative; or (b) an individual who is his or her representative ceases to provide any type of financial advisory service, which he is appointed to provide, provide particulars of such cessation to the MAS, in the prescribed form and manner. 12. PROVISIONAL REPRESENTATIVE A. Criteria To Be Appointed As A Provisional Representative 12.1 Section 24(1) of the FAA provides that a provisional representative in respect of a type of financial advisory service is an individual: (a) who satisfies the entry requirements as may be specified by the Authority for that type of financial advisory service; (b) who intends to undergo an examination in order to satisfy the examination requirements specified by the Authority under section 23(2) for that type of financial advisory service, the fact of which has been notified to the Authority in the document lodged under section 26(1); (c) whose name is entered in the public register of representatives as a provisional representative; (d) whose status as a provisional representative has not currently been revoked or suspended and who has not currently been prohibited by the MAS from providing that type of financial advisory service; (e) whose entry in the public register of representatives indicates that the individual is appointed to provide that type of financial advisory service and does not indicate that he has ceased to be so; (f) whose principal: (i) is licensed to provide that type of financial advisory service; or (ii) provides that type of financial advisory service in its capacity as a person exempted from the requirement to hold a financial adviser’s licence under Section 20(1)(a), (b), (c), (d) or (e) of the FAA; (g) who has not previously been appointed as a provisional representative by the MAS; and (h) who is not, by virtue of any circumstances prescribed by MAS disqualified from acting as a provisional representative. 1-28 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives 12.2 Section 24(2) of the FAA read with Regulation 4B(1) of the FAR provides that an individual shall only be a provisional representative for a period not exceeding three months from the date his name is entered in the public register of representatives. B. Cessation Of Status Of Provisional Representative 12.3 Section 24(3) of the FAA provides that a provisional representative shall immediately cease to be one: (a) upon the expiry of the period of time as specified by MAS under subsection 2 of the FAA; (b) if the provisional representative fails to comply with any condition or restriction imposed on him under Section 31 of the FAA; (c) upon the provisional representative’s principal informing MAS of the satisfaction of the examination requirements as specified for that or any other type of financial advisory service; or (d) on the occurrence of such other circumstances, as MAS may prescribe. 12.4 Section 24(4) of the FAA states that Section 23(3) to (8) of the FAA [other than subsection (4)(e) thereof) shall apply to a provisional representative: (a) as if the reference in Section 23(6) to Section 23(1) of the FAA were a reference to Section 24(1) of the FAA; and (b) with such other modifications and adaptations as the differences between provisional representatives and appointed representatives require. 12.5 Section 24(5) of the FAA read with Regulation 4B(2) of the FAR provides that, where a provisional representative has satisfied the examination requirements, his principal shall inform the MAS of this fact in the prescribed form and within the three month grace period. Copyright reserved by Singapore College of Insurance Limited [Version 1.0] 1-29 RES 5: Rules, Ethics and Skills for Financial Advisory Services 13. DIFFERENCES BETWEEN APPOINTED REPRESENTATIVE AND PROVISIONAL REPRESENTATIVE 13.1 Appointed representatives are required to satisfy the minimum entry and examination requirements as set out in the Notice on Minimum Entry and Examination Requirements for Representatives of Licensed Financial Advisers and Exempt Financial Advisers [Notice No: FAA- N13]. The status as appointed representative is valid until it ceases under the circumstances as described in this chapter. 13.2 Provisional representatives are given a grace period of three months to pass the requisite examinations applicable to appointed representatives as stipulated in the MAS’ Notice No: FAA-N13. During the three months grace period, they are allowed to provide financial advisory services. The objective of the provisional representative scheme is to facilitate the relocation of experienced professionals to Singapore and allow them to begin working as soon as possible. In addition to education and work experience-related admission criteria, a provisional representative must be currently or previously licensed, authorised or otherwise regulated for at least 12 months (and not more than 12 months ago) in relation to a comparable type of financial advisory service in an overseas jurisdiction, with a regulatory regime that is comparable to that of Singapore. The principal is also required to undertake to properly supervise the provision of financial advisory service by the provisional representative. 13.3 The appointment of a provisional representative is valid for a period of up to three months after his name is entered into the Public Register as a provisional representative. The provisional representative can continue to provide financial advisory service as an appointed representative after: (a) his or her principal has notified the MAS (within the three-month grace period) of the representative’s fulfilment of the relevant examination requirements via a one-time lodgement of Form 3D (Form 3D is available on the MAS website); and (b) his or her name has been entered in the Public Register as an appointed representative. 13.4 Do refer to the MAS Notice No: FAA-N12 for more details. 1-30 Copyright reserved by Singapore College of Insurance Limited [Version 1.0] Part I Chapter 1. Financial Advisers Act And Financial Advisers Regulations - Financial Advisers And Representatives 14. NOTIFICATION PROCEDURE A. Documents To Be Lodged With The MAS 14.1 Section 26(1) of the FAA provides that a principal who desires to appoint an individual as an appointed or provisional representative in respect of any type of financial advisory service shall lodge the following documents with the MAS in such form and manner as the MAS may prescribe: (a) a notice of intent by the principal to appoint the individual as an appointed or provisional representative in respect of that type of financial advisory service ; (b) a certificate by the principal that the individual is a fit and proper person to be an appointed or provisional representative in respect of that type of financial advisory service; and (c) in the case of a provisional representative, an undertaking by the principal to undertake such responsibilities in relation to the representative as may be prescribed. 14.2 Section 26(1) of the FAA shall not apply to a principal who desires to appoint, as an appointed representative in respect of any type of financial advisory service, an individual

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