CMFAS RES 4 Study Guide (6 June 2024) PDF

CAPITAL MARKETS AND FINANCIAL ADVISORY SERVICES (CMFAS) EXAMINATIONS STUDY GUIDE RES 4 RULES, ETHICS AND SKILLS FOR CORPORATE FINANCE i| © ALL RIGHTS RESERVED The Institute of Banking and Finance February 2024 (Version 1.0) 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 and 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 that is correct, current or applicable as of 30 September 2023. For the latest set of rules and regulations, the reader or user is advised to refer to the latest set of rules and regulations issued by the relevant regulatory authorities. 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. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Acknowledgements | ii Acknowledgements IBF would like to express its gratitude to all members of the Capital Markets and Financial Advisory Services (CMFAS) Examinations Board and CMFAS Examinations Industry Panel – Corporate Finance for their contributions and support in the development of the CMFAS Study Guides and Examinations. Study Guide Writers IBF would like to thank the following study guide writers* for reviewing and updating the Study Guide: Ramesh Shahdadpuri, Trainer/Consultant, Strategic Moves Pte Ltd Sandip Talukdar Wong Partnership LLP Eng & Co. LLC [* Information accurate as at date of appointment.] Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted iii | Preface Preface RES 4 - Rules, Ethics and Skills for Corporate Finance The objective of the CMFAS RES 4 – Rules, Ethics and Skills for Corporate Finance (RES 4) Examination is to test candidates on their knowledge and understanding of the following: i Regulatory framework including the laws and regulations and associated codes, notices, practice notes and guidelines governing advising on corporate finance; ii Ethics codes, considerations, and standards of professional conduct relating to advising on corporate finance; and iii Fundamental skills and practices relating to advising on corporate finance. 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 appointed representatives is lodged with the Monetary Authority of Singapore (MAS) on the Public Register via the Representative Notification Framework (RNF) before they can commence any regulated activities. For details, please refer to the MAS Notice on Competency Requirements for Representatives of Holders of Capital Markets Services Licence and Exempt Financial Institutions under the Securities and Futures Act 2001 (SFA 04-N22). The Study Guide contains regulatory requirements for Capital Markets Services licence holders and their representatives conducting regulated activities advising on corporate finance under the Securities and Futures Act. Candidates should take note that some of the regulatory requirements, in particular, the business conduct requirements, are also applicable to exempt financial institutions (EFIs), such as banks and their representatives, who conduct the same type of regulated activities. For example, Regulation 54 of the Securities and Futures (Licensing and Conduct of Business) Regulations applies certain provision of the Securities and Futures Act to EFIs and their representatives. Candidates who have passed the CMFAS Examinations are encouraged to continue their learning journey by attending IBF accredited programmes, attaining the required skills leading to IBF Certification. For more information, please visit www.ibf.org.sg. Organisation of the Study Guide The Study Guide consists of 9 Chapters, starting with rules and regulations governing the conduct of corporate finance advisory activities, followed by the ethical codes and conduct and elementary skills relating to activities of corporate finance in Singapore. The emphasis in each Chapter is to ensure that candidates have a good understanding of the rules and regulations, ethical principles and skills relevant to perform their roles effectively. 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 the topics discussed. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Preface | iv A summary of each Chapter is provided below: Chapter 1: The Capital Markets and Corporate Finance Industry in Singapore Provides an overview of the capital markets eco-system, regulatory bodies and the relevant legislation and rules governing the conduct of capital market activities in Singapore. Chapter 2: Raising Capital Provides an overview of the documentation for equity and bond issues and the roles of parties involved in these issues as well as documentation required for various types of equity and bond issues. Chapter 3: Getting Listed Provides an overview of the Initial Public Offer (IPO), listing processes of equity and bond issues on SGX-ST, understanding of requirements and conditions governing the listing of equities and bonds and outlines the obligations and liabilities of an issue manager/Catalist sponsor in the listing process. Chapter 4: Post Listing Obligations and Considerations Provides an overview of the delisting process and advises on post listing obligations in relation to disclosure of material information by the listed entity. Chapter 5: Overview of Singapore Code on Take-overs and Mergers Outlines the legal and regulatory framework governing take-over offers including scenarios triggering a take-over offer and requirements of the Takeover Code and legal issues relating to take-over activities in Singapore. Chapter 6: Market Conduct Provides an overview of the rules and regulations that govern market conduct relating to corporate finance activities. Chapter 7: Ethics, Codes and Standards of Professional Conduct for Corporate Finance Discusses the concepts of ethics, standards of professional conduct, ethical issues and expectations for representatives in the corporate finance industry in Singapore. Chapter 8: Corporate Finance Practices and Skills Outlines some of the key skills and industry practices that are relevant for representatives conducting corporate finance activities in Singapore. Chapter 9: Prevention of Financial Crimes Discusses the regulatory requirements for the prevention of financial crimes, including anti- money laundering and countering the financing of terrorism. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted v | Preface We have included a set of Review Questions with the answers highlighted in bold to support candidate’s learning. A list of essential readings is also provided in Appendix C. Candidates should ensure that they complete the essential readings before attempting the examination. The Appendices are provided for candidates’ reference and to enhance their understanding of the important concepts covered in this Study Guide. 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 Updates to Study Guides at www.ibf.org.sg for the latest updates. Important Notes about the Examination The RES 4 examination is conducted at the IBF Assessment Centre. The examination includes questions that test candidates’ knowledge, understanding and application of the relevant rules, ethics and skills relating to advising on corporate finance. The examination comprises 60 multiple-choice questions and multiple-response questions, with a duration of 1 hour and 30 minutes. The passing mark is 75%. Candidates should note that they will NOT be tested on the amount of penalties applicable under the laws and regulations and associated codes, notices and guidelines governing corporate finance activities. For more information on all the examination rules, regulations and other administrative procedures, please refer to the IBF website at www.ibf.org.sg. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Table of Contents | vi Table of Contents Acknowledgements.................................................................................................................................. ii Preface................................................................................................................................................... iii RES 4 - Rules, Ethics and Skills for Corporate Finance..................................................................................................... iii Organisation of the Study Guide..................................................................................................................................... iii Study Guide Updates........................................................................................................................................................ v Important Notes about the Examination......................................................................................................................... v Table of Contents.................................................................................................................................... vi Chapter 1: The Capital Markets and Corporate Finance Industry in Singapore.......................................... 21 1.1 Introduction...................................................................................................................................................... 22 1.2 Institutional Participants in the Corporate Finance Markets............................................................................ 24 1.3 The Regulatory Framework and Regulatory Bodies.......................................................................................... 25 1.4 Grant of Capital Markets Services Licence........................................................................................................ 32 1.5 Registration of Representatives with MAS............................................................................................ 36 Chapter 2: Raising Capital....................................................................................................................... 21 2.1 Introduction...................................................................................................................................................... 21 2.2 Equity Securities................................................................................................................................................ 21 2.3 Main Parties to an Equity Issue......................................................................................................................... 23 2.4 Key Transaction Documents for an Issue of Equity Securities.......................................................................... 24 2.5 Introduction to Bonds....................................................................................................................................... 26 2.6 Structural Variations for Bond Issues................................................................................................................ 29 2.7 Main Parties to a Bond Issue............................................................................................................................. 32 2.8 Key Transaction Documents for an Issue of Bonds........................................................................................... 38 Chapter 3: Getting Listed...................................................................................................................... 129 3.1 Introduction.................................................................................................................................................... 129 3.2 Initial Public Offering of Shares....................................................................................................................... 131 3.3 Listing Criteria for Equity Securities................................................................................................................ 132 3.4 The Listing Process for Equity Securities on SGX-ST........................................................................................ 145 3.5 Prospectus Requirements and Liabilities under the SFA................................................................................. 151 3.6 Roles of the Issue Manager or Catalist Sponsor in the IPO and Listing Process.............................................. 163 3.7 IPO of Units in Business Trusts........................................................................................................................ 165 3.8 IPO of Units in Real Estate Investment Trusts................................................................................................. 174 3.9 IPO of Investment Funds................................................................................................................................. 183 3.10 Price Stabilisation in Connection with an IPO................................................................................................. 185 3.11 IPO, Listing Criteria and Other Requirements for Bonds................................................................................. 186 3.12 Listing Process for Bonds................................................................................................................................. 194 3.13 Content of Offering Document....................................................................................................................... 196 3.14 Retail Bond Offering Frameworks – Seasoning Framework and Exempt Bond Issuer Framework................. 199 3.15 Offer Document Liability for Bonds................................................................................................................. 204 Chapter 4: Post Listing Obligations and Considerations......................................................................... 129 4.1 Introduction.................................................................................................................................................... 129 4.2 General Principles........................................................................................................................................... 130 4.3 Disclosure of Material Information (Chapter 7 of the Listing Manual )............................................................ 130 4.4 Changes in Capital (Chapter 8 of the Listing Manual)..................................................................................... 138 Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted vii | Table of Contents 4.5 Interested Person Transactions (Chapter 9 of the Listing Manual)................................................................. 146 4.6 Significant Transactions (Chapter 10 of the Listing Manual)........................................................................... 151 4.7 Circulars, Annual Reports and Electronic Communications (Chapter 12 of the Listing Manual).................... 160 4.8 Key Disclosure Obligations under the SFA...................................................................................................... 165 4.9 Overview of Delisting Procedures under the Listing Manual.......................................................................... 171 4.10 Voluntary Delisting.......................................................................................................................................... 178 4.11 Continuing Listing Obligations for Bonds........................................................................................................ 180 Chapter 5: Overview of Singapore Code on Take-overs and Mergers..................................................... 184 5.1 Legal and Regulatory Framework Governing Take-over Offers...................................................................... 184 5.2 Types of Offers under the Take-over Code..................................................................................................... 186 5.3 Persons Acting in Concert............................................................................................................................... 194 5.4 Suspension of Trading and Compulsory Acquisitions...................................................................................... 195 5.5 Alternative Modes of Takeovers..................................................................................................................... 196 5.6 Other Legal Issues Relating to Take-over Activities........................................................................................ 197 Chapter 6: Market Conduct.................................................................................................................. 252 6.1 Introduction.................................................................................................................................................... 252 6.2 Market Misconduct under the SFA and SGX-ST.............................................................................................. 252 6.3 False Trading and Market Rigging Transactions.............................................................................................. 253 6.4 Market Manipulation...................................................................................................................................... 255 6.5................................................................................................................................................................................. 258 6.5 Dissemination of False or Misleading Statements and Information............................................................... 258 6.6 Fraudulently Inducing Persons to Deal in Capital Markets Products.............................................................. 258 6.7 Employment of Manipulative and Deceptive Devices.................................................................................... 259 6.8 Dissemination of Information about Illegal Transactions............................................................................... 260 6.9 Securities Hawking.......................................................................................................................................... 260 6.10 Insider Trading................................................................................................................................................. 261 6.11 Exemptions or Defences for Market Misconduct Offences............................................................................ 266 6.12 Penalties for Breaching the Market Misconduct Offences............................................................................. 269 6.13 Corporate Disclosure....................................................................................................................................... 272 6.14 SGX-ST Best Practices Guide on Handling of Information and Dealings in Securities..................................... 273 6.15 MAS-SGX Trade Surveillance Practice Guide................................................................................................... 273 Chapter 7: Ethics, Codes and Standards of Professional Conduct for Corporate Finance......................... 252 7.1 Introduction.................................................................................................................................................... 252 7.2 The Ethical Framework.................................................................................................................................... 253 7.3 Ethical Dilemmas............................................................................................................................................. 256 7.4 Professional Ethics, Codes of Conduct and Standards of Professional Conduct for Corporate Finance......... 258 7.5 Applying the Ethical Framework for Resolving Ethical Dilemmas................................................................... 273 7.6 Business Conduct Requirements for Corporate Finance Advisers.................................................................. 276 Chapter 8: Corporate Finance Practices and Skills................................................................................. 252 8.1 Introduction.................................................................................................................................................... 252 8.2 Origination....................................................................................................................................................... 253 8.3 Financial Analysis and Valuation..................................................................................................................... 258 8.4 Capital Structure............................................................................................................................................. 260 8.5 Valuations........................................................................................................................................................ 262 8.6 Due Diligence and Documentation................................................................................................................. 270 8.7 Guidelines on Listings and Debt Capital Market Practice by the Association of Banks in Singapore (ABS).... 274 8.8 Investor Targeting and Distribution for Equity Offerings................................................................................ 274 8.9 Investor Targeting and Distribution for Debt Offerings.................................................................................. 280 8.10 Mergers & Acquisitions................................................................................................................................... 280 Chapter 9: Prevention of Financial Crimes............................................................................................. 289 9.1 Introduction.................................................................................................................................................... 290 Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Table of Contents | viii 9.2 Anti-Money Laundering and Counter-Terrorism Financing Regime in Singapore.......................................... 296 9.3 The Regulatory Framework of Financial Crimes – Rules and Regulations...................................................... 297 9.4 MAS Notices and Regulations on Prevention of Money Laundering and Countering the Financing of Terrorism ……………………………………………………………………………………………………………………………………………………………………304 9.5 Targeted Financial Sanctions related to Anti – Money Laundering and Terrorism Financing........................ 305 9.6 Designation of Tax Crimes as Money Laundering Predicate Offences in Singapore....................................... 306 9.7 The Three Lines of Defence............................................................................................................................. 308 9.8 Governance..................................................................................................................................................... 310 9.9 Client Onboarding........................................................................................................................................... 311 9.10 Enterprise-Wide Risk Assessment................................................................................................................... 331 9.11 Risk Controls for New Products, Practices and Technologies......................................................................... 332 9.12 Operational Risk Controls to Prevent Financial Crimes................................................................................... 332 9.13 Reporting and Filing Requirements................................................................................................................. 333 9.14 Penalties and Risks for Non- Compliance........................................................................................................ 333 9.15 Internal Policies, Compliance, Audit and Training........................................................................................... 334 9.16 Effectiveness of AML/CFT Framework............................................................................................................ 335 Appendix A: Examples of Suspicious Transactions................................................................................. 338 Appendix B: Review Questions............................................................................................................. 343 Appendix C: Essential Readings............................................................................................................ 353 Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted 21 | Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore Chapter 1: The Capital Markets and Corporate Finance Industry in Singapore Learning Objectives The candidate should be able to understand the: ✓ Basic features of the capital markets, including the primary and secondary markets, exchanges (over- the-counter and regulated) and financial intermediaries. ✓ Capital markets and market participants in the corporate finance industry in Singapore. ✓ Requirements for notification as appointed representatives under MAS’ Representative Notification Framework. ✓ Roles of each regulatory body and self-regulating organization in the regulation of the capital markets industry, such as: Monetary Authority of Singapore (MAS); Singapore Exchange Limited (SGX); Singapore Exchange Regulation Pte Ltd (SGX RegCo); Singapore Exchange Securities Trading Ltd (SGX-ST); and The Central Depository (Pte) Limited (CDP). ✓ Origin of the relevant rules and requirements governing corporate finance activities including: Securities and Futures Act (SFA); Securities and Futures Regulations (SFR); Securities and Futures (Offers of Investments)(Securities and Securities-based Derivatives Contracts) Regulations (SFR(OI)(Securities)); SGX-ST Mainboard and Catalist Rules; SGX-ST Trading Rules; CDP Clearing Rules; CDP Delivery versus Payment (DVP) Rules; and CDP Depository Rules. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore | 22 1.1 Introduction 1.1.1 The Capital Markets in Singapore 1.1.1.1 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. 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 realise a profit, or to remove a poorly performing instrument from their investment portfolio. 1.1.1.2 The Secondary Market Trading activity that happens outside of the initial capital-raising activities (i.e. in the primary market) takes 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. Common examples of derivatives include futures, options, issuer or company warrants and leverage certificates. In Singapore, the Singapore Exchange Limited (SGX) provides capital-raising and risk management opportunities to the global market through its product offerings and has one of the most well-established listing locales in the Asia Pacific region (refer to Table 1.1.1.2). Table 1.1.1.2: Examples of products offered by SGX for Capital Raising and Risk Management Capital Raising Risk Management The Singapore Exchange Shares Issuer Warrants Securities Trading Limited Bonds Leverage Certificates (SGX-ST) Company Warrants The Singapore Exchange - Futures Derivatives Trading Limited Options (SGX-DT) SGX-ST is the securities subsidiary of SGX and is the preferred listing location to more than 700 companies, a large percentage of which are foreign companies. The listings range in sectors from real estate and shipping to offshore marine and infrastructure. The corporate finance environment in Singapore also includes a thriving insurance hub and global private banking centre. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted 23 | Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore 1.1.2 Debt Capital Markets in Singapore The Asian Financial Crisis of 1997 highlighted the need for diversification in the financial services markets. Prior to the crisis, bond markets in Asia (including Singapore) were underdeveloped and dominated by government issuance. Today, Singapore’s bond market offers an extensive range of Singapore Government Securities, quasi- government bonds, local and foreign corporate bonds, and structured securities. The bond market is fully accessible to all issuers and investors globally. There are no capital controls or hedging restrictions and withholding taxes may be avoided or minimised in most cases. As a result, the market’s profile is international in nature, with foreign entities accounting for more than a quarter of bond issuance. Regulations were revised in 2009 to qualify high-grade securities issued by foreign entities as regulatory liquid assets. Since then, there has been an increase in issuances by well-known AAA-rated foreign issuers. While bond issuances in Singapore have predominantly been sold to institutional and/or accredited investors, bond offerings with a lower minimum subscription size and which are tradable on SGX-ST are also available to the retail investors. 1.1.3 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 capital markets product. An exchange provides a centralised market where buyers and sellers can congregate. This allows for the efficient discovery of the prices and quantities at which each participant is interested to buy or sell capital markets products. 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. Besides the equities and bond markets, Singapore is also the largest market for Real Estate Investment Trusts (REITs) in Asia outside of Japan and there is an extensive selection of non-real estate related business trust listings on SGX-ST. The local bond market offers an extensive range of both Singapore government securities and corporate bonds. Bond offerings with a lower minimum subscription size and tradable on the SGX-ST Mainboard are also available to the retail market. Singapore also has active foreign exchange and OTC derivatives markets and offers deep and liquid markets for trading and hedging of G3 currencies (i.e. the US dollar, the Japanese yen, and the Euro), as well as Asian emerging market currencies. Asset management activity has fallen by 10% in 2022, with total assets under management in Singapore estimated at $4.9 trillion in 2022. 1.1.4 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 accurate information on its financial standing, future potential and any other relevant information. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore | 24 Financial intermediaries such as banks or financial institutions with a Capital Markets Services (CMS) licence to advise on corporate finance are usually appointed as issue managers or sponsors for a Mainboard or Catalist listing on SGX-ST respectively. SGX maintains a list of accredited issue managers and a list of authorised full sponsors. 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 Corporate Finance Markets 1.2.1 Banks Singapore is an established financial centre and base for many international and local financial institutions. The banking sector has been critical to Singapore’s role in financing local and regional growth, for example in facilitating trade, corporate finance and the building of infrastructure. There are different types of banks licensed under the Banking Act 1970 which may provide capital market services, such as advising on corporate finance and dealing in capital markets products. For example, a bank may act as an underwriter in an initial public offering of equity securities, or act as arranger or lead manager of debt issuance programmes and/or issues of notes, bonds and other debt securities. The types of banking licences include: i. Qualifying Full Banks/ Full Banks; ii. Wholesale Banks; and iii. Merchant Banks. 1.2.1.1 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 insurance policies as distributors for insurance companies. As 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, accredited and institutional clients. 1.2.1.2 Wholesale Banks Wholesale banks provide the full range of banking business but are restricted in their deposit taking activities. Wholesale banks are allowed to take foreign currency deposits in any amount but are restricted to take deposits in Singapore dollars. They can accept Singapore dollar fixed deposits of at least S$250,000. While they may operate Singapore dollar saving or current accounts, such Singapore dollar savings or current account should not be interest-bearing when such account is opened for a Singapore resident who is a natural person, except with prior approval of MAS. Many wholesale banks therefore prefer to solicit business from high net-worth Individuals through their private banking arms. Such clients are usually more interested in capital markets products for investment. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted 25 | Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore 1.2.1.3 Merchant Banks Merchant banks are licensed under section 55S of the Banking Act since 1 July 2021. They are not allowed to accept Singapore dollar deposits or borrow Singapore dollars from the public in any form except from banks, finance companies, their shareholders and companies controlled by their shareholders. Merchant banks are not found in the retail space but can undertake banking business or deposit taking business in accordance with the Banking Act and Banking (Merchant Banks) Regulations 2021. 1.2.2 Capital Markets Services (CMS) Licence Holders CMS licence holders which are involved in the raising of capital include (among others): i. Corporate finance advisory companies; and ii. Broker /dealer companies. 1.2.2.1 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 be1. They also advise on compliance with or in respect of laws or regulatory requirements (including listing rules) relating to fund raisings and on arrangements, reconstructions and take-overs, acquisitions and disposals. 1.2.2.2 Broker / Dealer Companies Broker/dealer companies provide services such as matching buyers of securities with sellers or underwriting securities offerings. In the context of the capital markets eco-system, broker/dealer companies would also be Trading or Clearing Members which provide trading or clearing services to their customers, allowing the customers to trade on SGX-ST. 1.2.3 Others Finance companies are licensed under the Finance Companies Act 1967 and therefore are not required to apply for a CMS licence for regulated activities which are not prohibited by the Finance Companies Act or for which the finance company has been granted an exemption from Section 25(2) of the Finance Companies Act. Some finance companies are also accredited issue managers and authorised full sponsors and act as issue managers or Catalist sponsors for SGX-ST listings on the Mainboard and Catalist respectively. 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 the interests of investors and maintain confidence and stability in the market by: i. Keeping risks at acceptable levels to maintain both the stability of the financial system as a whole and the soundness of individual institutions; 1 Under the Listing Rules for Catalist, companies seeking a listing are required to appoint a full sponsor to be eligible for listing on Catalist. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore | 26 ii. Maintaining a safe and efficient financial market infrastructure; iii. Ensuring fair, orderly and transparent organised markets; and iv. Keeping customers well-informed and empowered. To achieve these objectives, the securities and derivatives markets, in particular, are regulated by regulatory bodies including the MAS and the relevant approved exchanges. The primary regulators of the corporate finance industry in Singapore are MAS and SGX-ST. Financial institutions and participants in the corporate finance industry are expected to comply with the relevant listing rules, regulations and codes as discussed in Section 1.3.2 and the subsequent Chapters. 1.3.1 Roles of the Regulatory Bodies and Self-Regulatory Organizations 1.3.1.1 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: i. 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; ii. Conduct integrated supervision of financial services and financial stability surveillance; iii. Manage the official foreign reserves of Singapore; and iv. Develop Singapore as an international financial centre. MAS plays a critical role in shaping Singapore’s financial industry through active promotion of strong corporate governance framework and close adherence to international accounting standards. It is responsible for, amongst others, the administration of the following legislations which are relevant to the capital markets industry, including: SFA, the main legislation governing the capital markets industry in Singapore. Securities and Futures (Licensing and Conduct of Business) Regulations (SFR(LCB)); Securities and Futures (Organised Markets) Regulations; Securities and Futures (Clearing Facilities) Regulations; Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services Licence) Regulations (SFR(FMR)); Securities and Futures (Corporate Governance of Approved Exchanges, Approved Clearing Houses and Approved Holding Companies) Regulations; and Financial Services and Market Act 2022. The SFA gives MAS a wide range of powers to enable the sound development of the capital markets. These include (but are not limited to) the power to: Approve exchanges and clearing houses; Review any amendments to rules and regulations of the exchanges and clearing houses; Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted 27 | Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore 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 an exchange, a person operating an exempt market, a clearing house, a person operating an exempt clearing facility, a holder of a CMS 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. 1.3.1.2 Singapore Exchange Limited (SGX) SGX is Asia’s leading and trusted market infrastructure, operating equity, fixed income and derivatives markets to the highest regulatory standards. As Asia’s most international, multi-asset exchange, SGX provides listing, trading, clearing, settlement, depository, and data services, with a large proportion of listed companies and bonds originating outside of Singapore. SGX is the world’s most liquid offshore market for the benchmark equity indices of China, India, Japan and ASEAN, and offers commodities and currency derivatives products. Headquartered in AAA-rated Singapore, SGX is globally recognised for its risk management and clearing capabilities. SGX offers a fully integrated value chain from trading and clearing, to settlement and depository services. 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 facilities and requires a comprehensive, integrated, and reliable 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 Guiding 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. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore | 28 SGX maintains a close collaborative relationship with other regulatory and enforcement agencies such as the MAS, Commercial Affairs Department (CAD) of the Singapore Police Force and the Accounting and Corporate Regulatory Authority (ACRA) on matters such as regulatory policies, risk management, regulatory oversight, and enforcement actions. 1.3.1.3 Singapore Exchange Regulation Pte Ltd In 2017, SGX established SGX RegCo as an independent regulatory subsidiary of SGX to enhance the governance of SGX as a self-regulatory organisation, and explicitly segregate the exchange’s regulatory functions from its commercial and operating activities. SGX RegCo undertakes all the front-line regulatory functions and has a separate board of directors from SGX. 1.3.1.4 Singapore Exchange Securities Trading Limited SGX-ST is a subsidiary of SGX incorporated under the Companies Act 1967. 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 the SGX-ST Trading 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 that are already listed can also raise further capital through the market and SGX-ST. Companies can choose to be listed on the SGX-ST Mainboard or Catalist. The Mainboard caters to the needs of more established companies, with higher entry and listing requirements such as minimum profit and market capitalisation levels. Catalist 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 to be listed on Catalist, there is no quantitative entry criteria required by SGX-ST. Instead, sponsors will decide if the listing applicant is suitable to be listed. The listing requirements applicable to all companies that wish to be listed on the SGX-ST platforms are contained in the SGX-ST Listing Manual2, which contains the rules and regulations for, among others: Listing requirements; Acquisitions; Realizations; Takeovers; and Timely disclosure of corporate information. 1.3.1.5 The Central Depository (Pte) Limited CDP, established in 1987, is a wholly owned subsidiary of SGX. It provides integrated clearing, settlement and depository facilities for the securities market, including equities, fixed income instruments and funds. CDP principally serves the Singapore market, but has links with other central depositories to support settlement of cross-border trades. 2 The SGX-ST Listing Manual contains the Mainboard Listing Rules and the Catalist Listing Rules. Refer to the SGX website for further details at https://rulebook.sgx.com/. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted 29 | Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore 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+23. 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. SGX has introduced, in 2021, an Intra-day Settlement Run, to facilitate earlier settlement of securities, thereby reducing counterparty risks in the securities clearing system. 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 participants and ensures there is a simultaneous transfer of cash and securities. For transactions settled on a FOP basis, participants make their money settlement without involving CDP. Clearing Members of CDP must adhere to the following CDP Rules, where applicable. These are the: CDP Clearing Rules; CDP Depository Rules; and CDP Settlement Rules. 1.3.2 Rules and Regulations Governing the Corporate Finance Industry 1.3.2.1 Securities and Futures Act (“SFA”) The SFA is the main legislation governing the capital markets industry in Singapore. It regulates activities and institutions in the securities, futures and derivatives industry, including dealing in capital markets products (including but not limited to securities, derivatives, units in a collective investment scheme, leveraged foreign exchange trading), clearing facilities, and matters connected therewith. MAS is the regulatory body responsible for the administration of the SFA. The SFA is supplemented by regulations made by MAS for carrying out the purposes and provisions, and for the due administration, of the SFA. 3 SGX-ST Rule 9.2 – Settlement Basis and Eligibility for Clearing by CDP. T+2 refers to 2 exchange business days, which is 2 exchange business days after the trade day. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore | 30 1.3.2.2 Listing Manual of SGX-ST SGX-ST has issued a number of rulebooks that contain the various rules governing, among others, the listing of securities on SGX-ST. The Mainboard Rules of the SGX-ST Listing Manual set out the requirements which apply to issuers that are listed, or are seeking a listing, on the Mainboard, the manner in which their securities are to be offered, and their continuing obligations post-listing. The Catalist Rules set out the corresponding requirements for issuers that are listed, or are seeking a listing, on Catalist. The listing rules may be amended by SGX-ST from time to time (subject to such approval as may be required by applicable law), and are interpreted, administered and enforced by SGX-ST. The listing rules are themselves not statutory in nature and a breach of such rules does not constitute an offence, unless the breach also constitutes breach of SFA requirements such as the continuous disclosure requirement4. Nonetheless, SGX-ST is able to apply for a court order to enforce compliance with the listing rules5. This power has rarely, if ever, been used. In practice, ready observance of the listing rules is advised, as failure to comply may lead to a reprimand, suspension from trading of the issuer’s securities and, at worst, to de-listing. Catalist is the first sponsor-supervised listing platform in Asia. The one important difference with listing on the Mainboard is that a company listed on Catalist has to be sponsored by a Sponsor. Approved Sponsors are responsible for determining the suitability of a company for listing on Catalist, vetting new listings and supervising them thereafter. SGX has established three independent Listing Committees - the Listings Advisory Committee, the Listings Disciplinary Committee and the Listings Appeals Committee, to strengthen its listings and enforcement framework. The Listings Advisory Committee will primarily strengthen the Mainboard listing policy-making and review process. The Listings Disciplinary Committee and the Listings Appeals Committee were established to enhance transparency of SGX-ST’s disciplinary process and ensure fair and independent administration of sanctions. Listings Advisory Committee (LAC) - The LAC comprises independent market professionals and was established to consider listing policies and specific applications for listing on the Mainboard that are referred to the LAC. The LAC was set up to address concerns about SGX’s perceived or actual conflicts of interests in relation to its role as the listing authority. A specific listing application may be referred to the LAC where any of the following referral criteria is met, namely (i) when novel or unprecedented issues are involved, (ii) specialist expertise is required, (iii) matters of public interest are involved, or (iv) SGX-ST is of the view that a referral is appropriate. The LAC also has the discretion to review a listing application which has not been referred to it if it takes the view that the application meets any of the referral criteria. In order for the LAC to decide whether to exercise this discretion, SGX will provide the LAC with a list of listing applications which SGX does not propose to refer to the LAC. Listings Disciplinary Committee (LDC) - The LDC will hear and determine charges brought by SGX-ST against issuers, directors and executive officers of issuers, issue managers, financial advisers advising on reverse takeover applications, sponsors and registered professionals for a contravention of any of the Listing Rules. The LDC has a wide range of enforcement powers which enable it to impose appropriate sanctions for more serious breaches of the Listing Rules by such persons. These powers include the power to issue private warnings and public reprimands, impose fines against issuers, and requiring the resignation of an issuer’s director or executive officer. Listings Appeals Committee (LApC) - The LApC will hear and decide appeals from decisions of the LDC and decisions of SGX-ST relating to specified matters, for example rejection of an application for the extension 4 SFA Section 203 – Continuous Disclosure. 5 SFA Section 25 – Power of Court to Order Observance or Enforcement of Business Rules or Listing Rules. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted 31 | Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore of time to allow an issuer to restore its percentage of securities in public hands to at least 10%, and may vary the sanctions imposed by the LDC. 1.3.2.3 Code of Corporate Governance 2018 The Code of Corporate Governance (the Code) came under the purview of MAS and SGX with effect from 1 September 2007. The Code was first issued by the Corporate Governance Committee on 21 March 2001. The Corporate Governance Council (the Council) conducted a comprehensive review of the Code, and submitted its recommendations to MAS on 22 November 2011, and MAS issued a revised Code on 2 May 2012 that superseded and replaced the Code that was issued in July 2005. A further review was conducted by the Council from 2017 to 2018, and MAS issued a revised Code on 6 August 2018, which superseded and replaced the Code that was issued in May 2012. The 2018 Code applies to Annual Reports covering financial years commencing from 1 January 2019. The amendments to the revised Code issued in 2018 aim to support sustained corporate performance and innovation and strengthen investor confidence in Singapore's capital markets6. Compliance with the Code is not mandatory but listed companies are required under the listing rules to disclose their corporate governance practices and give explanations for deviations from the Code in their annual reports. The Listing Rules require listed entities to describe, in their annual reports, their corporate governance practices with specific reference to the principles of the Code7. An issuer must describe its corporate governance practices with specific reference to the principles of the Code in its annual report. It must disclose any deviation from any guideline of the Code together with an appropriate explanation for such deviation in the annual report. The Code is divided into the following categories: Board matters; Remuneration matters; Accountability and audit; and Shareholder rights and engagement. 1.3.2.4 Singapore Code on Take-overs and Mergers The Singapore Code on Take-overs and Mergers (the Take-over Code) governs take-over offers and all matters connected therewith, including the prevention of abuses and protecting minority shareholders in take-over and/or merger circumstances. The Take-over Code is issued by MAS pursuant to Section 321 of the SFA, and it is administered and enforced by the Securities Industry Council (SIC). The Take-over Code is non-statutory in that it does not have the force of law. Its primary objective is fair and equal treatment of all shareholders in a take-over or merger situation. It applies to corporations and business trusts with a primary listing in Singapore and REITs8. While it was drafted with listed public companies, listed registered business trusts and REITs in mind, unlisted public companies and unlisted registered business trusts 6 MAS Media Release "Corporate Governance Council Launches Public Consultation to Strengthen Corporate Governance" issued on 16 January 2018. 7 Rule 710 of the Mainboard Listing Manual – Continuing Obligations; Rule 710 of the Catalist Listing Manual – Continuing Obligations. 8 Refer to 2nd paragraph of Introduction section of the Singapore Code on Take-overs and Mergers. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore | 32 with more than 50 shareholders or unitholders, as the case may be, and net tangible assets of S$5 million or more9 must observe the letter and spirit of the Take-over Code, wherever this is possible and appropriate. Except with the SIC’s consent, where any person: i. acquires, whether by a series of transactions over a period of time or not, shares which (taken together with shares held or acquired by persons acting in concert with him) carry 30% or more of the voting rights of a company; or ii. who, together with the persons acting in concert with him, holds 30% to 50% of the voting rights and such person, or any person acting in concert with him, acquires in any six-month period additional shares carrying more than 1% of the voting rights, such person must make an immediate mandatory offer, on the basis set out in the Take-over Code, to the holders of any class of share capital of the company which carries votes and in which such person, or persons acting in concert with him, holds shares. 1.4 Grant of Capital Markets Services Licence CMS licence holders are licensed and regulated under the SFA. A corporation may make an application for a CMS licence10 to carry on business in one or more of the regulated activities as specified in the SFA11. A corporation that intends to deal in capital markets products, including derivatives contracts12, whether as principal or agent, will have to obtain a CMS licence for dealing in capital markets products. An existing CMS licence holder who wishes to vary its licence by adding a regulated activity or an additional capital markets product is required to seek MAS’ approval for the new regulated activity or product to be added to its existing licence. Individuals who are employed by or acting for CMS licence holders to carry out the regulated activities are required to be appointed representatives under the SFA. MAS supervises CMS licence holders and their representatives under the SFA to ensure that they are well-managed and resilient against systemic risks. A CMS licence will only be granted to a corporation. A corporation proposing to conduct regulated activities under the SFA would need to hold a CMS licence under the SFA unless it is exempted under the Third Schedule13 to the SFA or is an exempt institution14. 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 officers who are competent and have integrity, are granted a CMS licence. 9 Refer to 2nd paragraph of Introduction section of the Singapore Code on Take-overs and Mergers. 10 SFA Section 86 - Grant of Capital Markets Services Licence. 11 SFA Second Schedule – Regulated Activities. 12 Options on equity indices, such as the SGX Nifty Options contracts, are classified as “securities-based derivatives” under the SFA and dealing in such contracts would require a Capital Markets Services licence. 13 SFA Third Schedule - Specified Persons. 14 SFA Section 99 - Exemptions from Requirement to Hold CMS Licence; SFR (LCB) - Second Schedule (Exemptions from Sections 82(1) and 99B(1) of the Act; SFR (Exemption from Requirement to Hold Capital Markets Services Licence). Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted 33 | Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore 1.4.1 Base Capital Requirements (BCR) A CMS licence holder needs to satisfy the Base Capital Requirement (BCR)15 for its proposed regulated activities. The BCR for a CMS licence holder advising on corporate finance is S$250,000. If the corporate finance adviser is licensed to conduct more than one regulated activity, the highest base capital requirement among all its regulated activities will apply. 1.4.2 General Criteria for Capital Markets Services (CMS) Licence Holders16 The applicant should be primarily engaged in the business of conducting one or more of the regulated activities specified in the Second Schedule to the SFA and be operating out of a physical office in Singapore. The applicant must satisfy the MAS that it will discharge its duties efficiently, honestly, and fairly. MAS would consider 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 should be subject to proper supervision by its home regulatory authority, where applicable. In addition, the applicant, its officers, employees, representatives and substantial shareholders must be “fit and proper” persons in accordance with MAS’ Guidelines on Fit and Proper Criteria (FSG-G01). 1.4.3 Criteria for Board of Directors, Chief Executive Officer (CEO) and Representatives of the Applicant17 The board of directors and senior management of the applicant should uphold good corporate governance standards and practices in directing and managing the applicant’s business. The board of directors should comprise a minimum of 2 members, at least one of whom is resident in Singapore. The CEO18 of the applicant should also be a resident in Singapore. The applicant must obtain MAS’ approval before appointing a person as: i. its CEO; ii. in the case of a locally incorporated company, its director who resides in Singapore or is to reside in Singapore; or iii. in the case of a foreign company, its director who resides in Singapore or is to reside in Singapore; or iv. its director who is directly responsible for its business in Singapore. 15 SFR (Financial and Margin Requirements for Holders of Capital Markets Services Licences) First Schedule – Base Capital Requirement; MAS Guidelines on Criteria for the Grant of a Capital Markets Services Licence other than for Fund Management and Real Estate Investment Trust Management (SFA04-G01), Annex 1. 16 MAS Guidelines on Criteria for the Grant of a Capital Markets Services Licence other than for Fund Management and Real Estate Investment Trust Management (SFA04-G01). 17 MAS Guidelines on Criteria for the Grant of a Capital Markets Services Licence other than for Fund Management and Real Estate Investment Trust Management (SFA04-G01). 18 SFA Section 2(1) – Interpretation of “chief executive officer”. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore | 34 The applicant must also obtain MAS’ approval to change the nature of the appointment of a person as a director from one that is non-executive to one that is executive19. The applicant should also inform MAS of any person ceasing to hold office as its CEO or director. 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 licensed to conduct. These individuals must be appointed as representatives for the relevant regulated activity as required under the SFA. 1.4.4 Notification of Change of Particulars A CMS licence holder is required to inform MAS within 14 days of any change in particulars 20 if it ceases to carry on business in the regulated activity it is licensed for, or if there is a change in the CMS licence holder’s records21 as follows: i. The CMS licence holder’s name; ii. The address of the principal place of business in respect of the regulated activity; iii. The regulated activity or activities, or where such activity concerns the type or types of capital markets products, to which its licence relates; iv. 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 v. Such other information as may be prescribed. These changes must 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. 1.4.5 Lapsing, Revocation and Suspension of Capital Markets Services (CMS) Licence A CMS licence will lapse if the CMS licence holder is wound up or dissolved, whether in Singapore or elsewhere or upon any occurrence that may be prescribed by the MAS. MAS may also revoke or suspend a CMS licence if, among other things, it has reasons to believe that the CMS licence holder or its representatives or officers had failed to discharge its/his duties efficiently, honestly and fairly, or had not acted in the best interest of its/his customers, thereby breaching the conditions imposed on their licences22. Heavy financial penalties are imposed if a CMS licence holder continues to carry on business after its licence had lapsed or been suspended or revoked. This is to ensure that investors or other market participants are not misled into dealing with errant CMS licence holders which may result in financial losses or credit issues for the unknowing participants. 19 SFR (LCB) Regulation 12 – Application for Appointment of Chief Executive Officer and Director. 20 SFA Section 93 - Notification of Change of Particulars. 21 SFA Section 94 - Records of Holders of Capital Markets Services Licence. 22 SFA Section 95 - Lapsing, Revocation and Suspension of Capital Markets Services Licence. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted 35 | Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore 1.4.6 Approval of Chief Executive Officers (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 CEO or director23. 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 entered into a compromise or scheme of arrangement with creditors or have unsatisfied judgement debts. This expectation of CMS licence holders to meet the “Fit and Proper Criteria” requirements continues even after a CMS licence has been granted and is monitored on a continuing basis. MAS has the power of authority to direct the CMS licence holder to remove its CEO or directors if they fail to meet the “fit and proper” criteria, e.g. if they had been convicted of an offence involving fraud or dishonesty, is an undischarged bankrupt, or had failed to discharge their duties of office in ensuring the CMS licence holder’s compliance with its duties set out in Regulation 13A of the SFR(LCB) (refer to section 1.4.7)24. 1.4.7 Duties of Capital Markets Services Licence Holders CMS licence holders must 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 must institute adequate internal controls commensurate with the nature, scale and complexity of their business25. These include: i. Implementing effective written policies on all operational areas, including financial policies, accounting and internal controls, and internal audit and complying with these policies; ii. Putting in place compliance function and arrangements, including specifying the roles and responsibilities of officers and employees in helping to ensure 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; iii. Identifying, addressing and monitoring the risks associated with its trading or business activities; iv. Ensuring that its business activities are subject to adequate internal audit; v. Ensuring that internal audits of the CMS licence holder or its holding company (if any) include inquiring into the CMS licence holder’s compliance with all relevant laws and all relevant business rules of any approved exchange and approved clearing house; vi. 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); vii. Keeping a written record of the steps taken by the CMS licence holder to monitor compliance with its policies, accounting and operating procedures, and the limits on discretionary powers; 23 SFA Section 96 - Approval of Chief Executive Officer or Director of Holder of CMS Licence; SFR(LCB) Regulation 12 - Application for Appointment of Chief Executive Officer and Director. 24 SFR (LCB) Regulation 13A – Criteria for Determining if Chief Executive Officer or Director of Holder of Capital Markets Services Licence has Breached Duties. 25 SFR (LCB) Regulation 13 - Duties of Holder of CMS Licence. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore | 36 viii. 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 ix. 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 CMFAS examinations or are exempted from the examinations before notifying 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 examinations. CMS licence holders must also ensure that independent and rigorous due diligence checks are conducted to ensure that representatives meet the “Fit and Proper” criteria. They have to file a “Report on Misconduct of Representatives” if any of their 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 misconduct26. CMS licence holders who fail to comply with their prescribed duties will be guilty of an offence which is punishable with a fine. 1.5 Registration of Representatives with MAS Individuals intending to conduct any regulated activity under the SFA have to be an appointed representative, temporary representative27 or provisional representative28 in respect of that type of regulated activity they intend to carry out. They can only commence the regulated activities after they have satisfied the competency requirements for that type of regulated activity under the SFA (refer to Section 1.5.2) and their names have been entered into the Public Register of Representatives on MAS’ website, where applicable (refer to Section 1.5.5). CMS licence holders should ensure that they do not permit any individuals to conduct any regulated activity under the SFA if they are not notified as appointed, temporary or provisional representatives under the SFA or are otherwise exempted29. 26 MAS Notice on Reporting of Misconduct of Representatives by Holders of Capital Markets Services Licence and Exempt Financial Institutions (SFA 04-N11). 27 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 the Frequently Asked Questions on Licensing and Business Conduct (Other than for Fund Management Companies) under the SFA. 28 Provisional representatives are given a grace period of 3 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 (including 3 years of relevant work experience), provisional representatives must be currently or previously licensed, authorised or otherwise regulated for a continuous period of 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 the Frequently Asked Questions on Licensing and Business Conduct (Other than for Fund Management Companies) under the SFA. 29 SFA Section 99B(3) – Acting as Representative. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted 37 | Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore Any person who carries out regulated activities without being registered with MAS, will be guilty of an offence and will be liable on conviction to a fine and/or imprisonment term. 1.5.1 Acting for One Principal A representative of a CMS licence holder can act for only one principal unless he has the approval of MAS to act for more than one principal, or if the principals are related corporations30. 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: i. To provide clarity to investors on the status of the representatives, the principals they represent, and more importantly, where responsibility rests for complaints and redress; and ii. To ensure that principals closely monitor and supervise their representatives at all times. 1.5.2 Competency Requirements All appointed representatives who represent CMS licence holders must meet the competency requirements31 prescribed by MAS. To be eligible for registration as a Representative, an individual must fulfil all the following conditions: i. Be at least 21 years old; ii. Has 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 (only applicable to individuals who sat for the O-Levels in or before 1980); iii. Has satisfied the CMFAS examination requirements for those regulated activities he will deal in; and iv. Be a fit and proper person, which includes32: Possessing qualities of honesty, integrity and sound reputation; Competence and capability; Financial soundness, e.g. not an undischarged bankrupt, whether in or out of Singapore. The MAS Guidelines on Fit and Proper Criteria sets out further guidance on the factors to be taken into account in assessing fitness and propriety. 1.5.3 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. 30 SFA Section 99J - Representative to Act for Only One Principal. 31 MAS Notice on Competency Requirements for Representatives of Holders of Capital Markets Services Licence and Exempt Financial Institutions (SFA 04-N22). 32 MAS Guidelines on Fit and Proper Criteria (FSG-G01). Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore | 38 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 representatives33: i. 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 verifying his identity. If the proposed representative is a foreigner, CMS licence holders are expected to verify that he has the relevant employment pass or has approval from the relevant authorities to work in Singapore. ii. 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 with his previous employers. CMS licence holders are also expected to check the Public Register of Representatives (refer to Section 1.5.5.1) on the 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 bodies or associations, to verify the 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. iii. 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 Central Provident Fund (CPF) Board to verify that he is not in arrears of his contributions to the CPF Board as required under the CPF Act 1953. 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) Pte Ltd. 1.5.4 Revocation and Refusal of Registration of Representative34 MAS has broad powers to decide whether to register or revoke a representative’s registration. The decision whether to register a representative or to revoke a registration of a representative depends on the following: i. The seriousness or severity of circumstances surrounding the person’s failure to meet a specific criteria; ii. 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; and iii. The amount of time that has lapsed since the person’s failure to meet a specific criteria. Representatives are required to fulfil the “Fit and Proper” criteria as long as they continue to engage in the respective regulated activity(s). 33 MAS Circular on Due Diligence Checks and Documentation in Respect of the Appointment of Appointed, Provisional and Temporary Representatives (CMI 01/2011). 34 SFA Section 99M – Power of Authority to refuse entry or revoke or suspend status of appointed, provisional or temporary representative. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted 39 | Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore 1.5.5 Representative Notification Framework (RNF) CMS licence holders can register representatives as appointed35, provisional36 or temporary37 representatives with MAS through the RNF. The RNF allows CMS licence holders to lodge notifications with MAS electronically via the online system for their representatives who intend to conduct regulated activities. As part of the notification, CMS licence holders 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 Public Register of Representatives on MAS website. 1.5.5.1 Public Register of Representatives Besides 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, would be displayed on the Public Register of Representatives. 1.5.5.2 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 Public Register of Representatives, thereby reducing their risk of dealing with unregulated individuals. CMS licence holders are encouraged to make the unique representative numbers or the name of their representatives readily available for consumers to verify the representative’s regulatory status. It is thus important for representatives to know their own RNF number. 1.5.5.3 Cessation of Status of Representatives The status of an appointed 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; or 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 representative is only valid for a maximum of 3 months from the date his name is entered into the Public Register of Representatives. For a temporary representative, the principal can notify MAS of the appointment for a further 3-month period only after the representative has commenced the first 3-month block. 35 SFA Section 99D - Appointed Representative. 36 SFA Section 99E - Provisional Representative. 37 SFA Section 99F - Temporary Representative. Capital Markets and Financial Advisory Services Examination RES 4 – Rules, Ethics and Skills for Corporate Finance Restricted Chapter 1 - The Capital Markets and Corporate Finance Industry in Singapore | 40 1.5.6 Change of Particulars of Representatives An appointed, provisional or temporary representative is required to inform his principal company of any change in his identification or other relevant 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 manner38. 1.5.7 Continuing Education Requirements for Representatives Under the Guidelines on Fit and Proper Criteria (FSG-G01), “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 conduct39. 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. Training can be in the form of: Face to face training; E-learning; or Seminars and workshops and generally be via formal or documented learning. The Continuing Professional Development (CPD) activities can be a combination of: Relevant ethics and market conduct requirements40; Relevant product knowledge; Relevant compliance-related matters; or Other relevant skills or competencies. 38 SFA Section 99H(5) - Lodgment of Documents; SFR(LCB) Regulation 5 – Change of Particulars and Additional Regulated Activity of Representative. 39 MAS Notice on Competency Requirements for Representatives of Holders of CMS Licence and Exempt Financial Institutions (SFA 04-N22). 40 SFA 04-N22 states that an appointed representative must complete a minimum of 6 Core CPD Hours in ethics or rules and regulations or both, which are relevant to the regulated activity which the representative carries out and accredited by IBF. In addition, an appointed representative must complete a minimum of 3 Supplementary CPD hours in relevant training. Capital Markets and

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