CAPITAL MARKETS LICENCE OVERVIEW
Singapore is the only Asian country with a “AAA” rating from all 3 major credit rating agencies – Standard & Poor’s, Moody’s and Fitch. This strong credit rating has enabled Singapore to become an international financial centre and one of the leading global financial hubs, with a whole range of international banks setting up head offices and regional headquarters in Singapore.
The key to Singapore’s success is the robust regulatory framework in place for the financial services industry. The industry’s primary regulator is the Monetary Authority Singapore (MAS). All financial institutions operating in Singapore, including banks, insurance companies, stockbrokers, and fund managers, must be licenced by the MAS.
Businesses wishing to conduct any regulated services under the Securities and Futures Act (SFA) must obtain a Capital Markets Services Licence (CMS licence).
The regulated activities are:
- Dealing in Capital Markets Products
- Advising on Corporate Finance
- Fund Management
- Real Estate Investment Trust Management
- Product Financing
- Providing Credit Rating Services
- Providing Custodial Services for Securities
To obtain a CMS licence, you must fulfil the following requirements.
1. Services Provided / Target Clientele
When you are planning to start a business in the financial industry, there are 3 main issues you must consider. First, you need to determine which markets (regulated activity) your business falls under. Second, you must evaluate the expected assets under management (AUM). Thirdly, you will need to determine who are your target clientele.
2. Company Structure and Office Space
Your business entity must be structured as a company incorporated under the laws of Singapore. In addition, you should ensure that the business entity must have a permanent physical office in Singapore that is dedicated, secure and accessible only to your directors and staff.
3. Company Personnel
To protect and safeguard the interest of investors, the MAS requires that key personnel in the company, such as the shareholders, CEO, directors, and employees are “fit and proper” and possess the experience and track record to carry out the regulated activity. It should be noted that the experience of investing one’s own money is not relevant.
4. Company Financial Standing
To ensure that the company is committed to the long-term sustainability of the business, the MAS requires the company to meet specific financial requirements, namely base capital and risk-based capital requirements. Any CMS licence holder company should have a reasonable amount of additional capital buffer it needs, bearing in mind the scale and scope of its operations.
5. Company Compliance Arrangements
The key objective of the MAS regulatory framework is to ensure that financial institutions conduct their business with integrity and prudence and are appropriately supervised to minimise the risk of harm they may pose to the financial system and the economy. It also ensures that financial institutions offer a high level of consumer protection and service.
To ensure that the CMS licence holder companies conform with regulatory requirements, the MAS requires such licence holders to implement a compliance structure appropriate for its operations’ size, complexity, and nature and a practical framework for managing risks. The company also needs a robust internal audit and an anti-money laundering framework to discover, assess, comprehend, and manage its money laundering and terrorism funding threats.
6. Internal Audits
The MAS expects all CMS licence holders to be subjected to adequate internal audits. “Adequate internal audits” are those that take into account the scale, nature, and complexity of the licence holder’s operations.
7. Independent Annual Audits
Where applicable, CMS licence holders are subjected to annual audit requirements. Such audit arrangements should commensurate with its operations’ scale, nature and complexity.
There are stringent requirements that must be met before any company can be granted a CMS license in Singapore.
The MAS’s timeline for reviewing, processing, and approving any CMS licence application is determined by the business model. It would take no more than 4 months for straightforward cases where the applicant meets all of the required criteria and the documents submitted are in order.
The CMS licence has an indefinite validity period as long as the holders comply with ongoing obligations such as payment of annual licence fees and continued compliance with conditions, rules, and directions as set out by the MAS. Any non-compliance can result in the CMS licence being suspended or revoked.
The list of all CMS licence holders in Singapore can be found in the Financial Institution Directory on the MAS website.