BACKGROUND

Single Family Offices (“SFOs”) are exempt from licensing under the Securities and Futures Act 2001 (“SFA”), and the proposals are aimed at harmonising the criteria for a simplified class exemption regime and addressing potential money laundering (“ML”) risks posed by SFOs.

To offer a conducive operating environment for Singapore-based fund managers, the tax incentive schemes for funds under sections 13O and 13U of the Income Tax Act 1947 provide tax exemption to fund vehicles that are managed by Singapore-based fund managers, including family offices, subject to the fulfilment of the schemes’ conditions.

To be approved for the section 13O or 13U schemes, fund vehicles managed by family offices must meet certain criteria in relation to AUM, investment professionals, spending, capital deployment and maintaining private banking accounts.

SFOs have also come under additional scrutiny in line with Singapore’s enhanced efforts to tighten its regulatory environment in the area of Anti-Money Laundering, Countering the Financing of Terrorism and Proliferation Financing.

There are about 1,650 SFOs in Singapore.

NEW SFO FRAMEWORK and REGULATIONS

On 6 November 2024, Monetary Authority of Singapore (“MAS”) published the Response to Feedback for the proposed framework for Single Family Offices (“SFOs”) operating in Singapore, which was based on the Consultation Paper published on 31 July 2024.

These two publications outlined the regulatory expectations and framework for SFOs operating in Singapore, providing clarity on operational guidelines and compliance obligations to support SFOs in aligning with Singapore’s regulatory landscape and combat money laundering (“ML”) risk.

PROPOSED SFO FRAMEWORK

Key Components of the Proposed Frameworks

The key components of the proposed framework for Single Family Offices (SFOs) include:

1. Class Exemption and Qualifying Criteria: The framework proposes to introduce a structure-agnostic class exemption framework for SFOs, meaning, an SFO can be held via a trust, foundation or any other structure, so long as the funding for such structures originate exclusively from the family. This amended qualifying criteria will remove the need for case-by-case licensing exemptions under Securities and Futures (Licensing and Conduct of Business) Regulations (“SF(LCB)R”).

2. Notification and Annual Reporting Requirements: SFOs will be required to notify MAS within 7 days of commencement of business and obtain a legal opinion to support their qualification under the class exemption criteria. SFOs must submit an annual return within 14 days after the end of each calendar year, reporting total assets under management and other relevant information.

These components aim to enhance the regulatory oversight of SFOs operating in Singapore while ensuring they meet specific compliance standards.

MAS Clarification

The key concepts clarified in the proposed framework for SFOs in Singapore include:

1. Ownership Structure: SFOs can be owned by family members directly or through various structures (trusts, foundations), provided funding originates exclusively from the family.
2. Permissible Structures: SFOs are permitted to manage family trust and foundations whose beneficiaries are charitable organisations, which includes those that receive donations from other sources, so long as the beneficiaries have no control over the assets, and the SFO is not appointed to manage the assets of the charitable organisations.
3. Charitable Organizations: SFOs are permitted to manage funds for charitable organizations only if they are funded exclusively by one family. MAS regarded allowing SFOs to manage funds for charities that receive donations from other sources as inconsistent with the rationale for the class exemption.
4. Key Employees: Non-family key employees in an SFO are permitted to invest in the SFO and can hold a non-controlling stake in the SFO of up to 10%. The definition of key employees has been expanded to include Executive Directors, Chief Executive Officer, Chief Financial Officer, and investment professionals.
5. Definition of Family Members: Family members are defined by MAS as lineal descendants within five generations of a common ancestor, including in-laws, stepchildren, and legally adopted children. Subsequent generations can be included and served by the SFO.
6. Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) Compliance: MAS-regulated financial institutions should conduct AML/CFT checks as set out in AML/CFT notices on SFOs and their fund vehicles (“FVs”). In addition, the SFOs and their FVs must only open and maintain business relationships with MAS-regulated banks or a regulated bank in FATF equivalent jurisdictions for foreign FVs.
7. Initial Notification Timeline: The initial notification to MAS was required to be submitted no later than 7 days after the commencement of business in Consultation Paper. However, respondents have expressed that this timeline was too short, and MAS agreed with an extended timeline of 14 days.
8. Legal Opinion Requirement: SFOs are required to obtain a legal opinion supporting their exemption only through Singapore law firms.
9. Point of Contact: SFOs must have a directly employed staff, who is resident in Singapore, as the designated point of contact between the SFO and MAS.
10. Annual Reporting: The reporting timeline is extended from 14 days to within four months from the SFO’s financial year end, to be aligned with S130/S13U tax incentive scheme reporting.
11. Transition Period: Based on feedback, MAS has extended the transitional period to 1 year from the effective date of the SFO framework, allowing more time for existing SFOs to meet the new qualifying criteria.

WHAT’S NEXT?

SFOs should Plan and prepare for the transition according to the compliance requirement of SFOs to be finished within one year.

1. Evaluate if the SFO’s (and their FV) current shareholding arrangements qualified for class exemption from SF(LCB)R, and/or seek legal advice.

2. Review their SFO, FV principals’ AML/CFT profiles as they will be subject to Singapore banking AML/CFT customer due diligence.

And more…

HOW CAN WE HELP?

Contact Us today to discuss how we can provide the risk and compliance advisory solutions for you to prepare your SFO and FVs for the new SFO Framework. Find out more here.