Navigating Financial Services Licensing and Regulations in Singapore

Understanding the Role of the Monetary Authority of Singapore (MAS)

In the dynamic world of finance, where trust and stability are paramount, regulations play a pivotal role in ensuring the integrity of financial systems. Singapore, renowned as one of the world's leading financial hubs, adheres to a robust regulatory framework overseen by the Monetary Authority of Singapore (MAS). This article serves as your guide to comprehending financial services regulations in Singapore and sheds light on how they influence the issuance of licenses in this domain.

The Vital Role of Financial Regulations

A well-functioning financial system is the lifeblood of any nation's economy, serving businesses, individuals, and consumers alike. To maintain this delicate balance, financial regulations are put in place to oversee various entities such as banks, payment institutes, investment advisory firms, and insurance companies. These regulations are designed to safeguard consumers from concealed financial risks and fraudulent activities, promoting transparency and trust within the financial sector.

Enter Singapore: A Financial Powerhouse

Singapore's reputation as a global financial powerhouse is well-deserved. It offers world-class banking and financial services tailored to both individual and corporate clients. For those looking to venture into financial services in Singapore, this article aims to address some of the fundamental questions surrounding the when, why, and how of obtaining a license.

MAS: The Guardian of Financial Stability

At the heart of Singapore's financial regulatory landscape stands the Monetary Authority of Singapore (MAS). Functioning as Singapore's central bank and integrated financial regulator, MAS adopts a holistic approach to managing systemic financial risk. Its overarching mandate encompasses prudent oversight of all financial institutions in Singapore, including banks, insurers, capital market intermediaries, financial advisors, and stock exchanges. Additionally, MAS is charged with ensuring the seamless operation of financial markets and fostering ethical conduct within the sector.

Objectives of MAS' Licensing Regime

MAS' licensing framework is anchored in several key objectives:

1. Consumer Protection: Protecting the safety and interests of consumers is paramount. Licensing ensures that financial service providers meet stringent standards that prioritize consumer welfare.

2. Accountability: Businesses within the financial sector are held accountable for their actions and behavior. Licensing serves as a mechanism to enforce responsible conduct.

3. Expertise: Licensing assesses and verifies the expertise and competency of professionals working within the financial services industry.

4. Technical Excellence: Ensuring the quality and reliability of payment systems and other technical aspects of financial services.

5. Systemic Financial Stability: Safeguarding Singapore's financial system and overall financial stability through comprehensive risk monitoring and management.

Regulated Businesses Under MAS

If your entrepreneurial aspirations lead you to operate in the financial landscape of Singapore, it's crucial to understand which sectors fall under MAS' regulatory purview. Businesses in the following domains are obliged to secure the requisite licenses before commencing operations:

1. Payments: Entities involved in payment processing and transactions.

2. Banking: Financial institutions that provide banking services.

3. Capital Markets: Firms engaged in activities related to capital markets, including securities trading and brokerage.

4. Financial Advisory: Entities offering financial advisory services to clients.

5. Insurance: Companies operating within the insurance sector.

In the subsequent sections of this comprehensive guide, we will delve deeper into each of these sectors, exploring the specific businesses that require coordination with MAS before initiating operations. We will also outline the pertinent licensing regimes associated with these domains, providing you with a comprehensive understanding of financial services licensing and regulations in Singapore.

Diving Deeper: Understanding Regulated Business Categories

Payments

In the realm of payments, precision and reliability are paramount. The Payment Services Act in Singapore governs this sector, offering a dedicated licensing regime. Below, we explore the intricate web of services encapsulated within the Payments category:

Standard Payment Institutions: Holders of this license possess the flexibility to offer a combination of diverse payment services. These encompass account issuance, money transfer, international money transfer, merchant acquisition, money-changing, e-money issuance, and digital payment token services. However, it's worth noting that certain transaction thresholds apply to these services.

Major Payment Institutions: Distinguished by the capacity to conduct all seven types of payment services without the constraints of specified thresholds. This category empowers businesses to engage comprehensively in the payment landscape.

Credit and Charge Card Issuing Companies: Entities specializing in the issuance of credit and charge cards, facilitating seamless financial transactions for consumers.

Money-Changing Companies: Businesses involved in the exchange of currencies, catering to both residents and travelers.

Designated Payment System Operators: These operators manage specific payment systems, ensuring their efficient and secure functioning.

Designated Payment System Settlement Institutions: Playing a crucial role in the settlement process, these institutions ensure the seamless transfer of funds within designated payment systems.

Licensing Regime for Payments

The Payment Services Act meticulously outlines the regulatory framework governing payment services in Singapore. For a more comprehensive understanding, you can refer to our detailed guide on Singapore's Payment Services Act. If you require expert assistance with your license application in this domain, please don't hesitate to contact us.

Banking

In the multifaceted world of banking, Singapore offers a diverse spectrum of financial institutions, each with its unique focus and responsibilities. Let's delve into the specifics of various banking institutions and their licensing requirements:

Full Banks: These financial powerhouses are authorized to undertake universal banking activities. This includes deposit taking, cheque services, lending, and other regulated activities such as financial advisory services, insurance brokering, and capital market services.

Wholesale Banks: While sharing many similarities with full banks, wholesale banks are distinguished by their focus on banking activities, excluding Singapore dollar retail banking.

Merchant Banks: Operating at the heart of capital markets, merchant banks engage in lending, asset management, private banking, securities dealing and underwriting, and investment banking.

Qualifying Full Bank: This unique scheme is tailored for foreign banks seeking to establish a significant presence in Singapore. Foreign full banks with Qualifying Full Bank status may enjoy specific privileges, further incentivizing their operations.

Finance Companies: With the mandate to engage in deposit-taking and lending activities, including services for individuals and corporations, finance companies serve as vital contributors to Singapore's financial ecosystem.

Admission Criteria

Before embarking on your journey to obtain a banking license, it's essential to understand the factors that the Monetary Authority of Singapore (MAS) takes into consideration during the application process. These include:

1. Financial Soundness: Evaluating the financial strength and stability of the financial institution, parent company, and major shareholders.

2. Home Country Supervision: Assessing the supervisory framework in the institution's home country, including cooperation with MAS and cross-border regulatory collaboration.

3. Written Consent: Obtaining the consent of the home country supervisory authority for establishing a banking operation in Singapore.

4. Strategic Vision: Demonstrating a well-conceived strategy for banking and financial services in Singapore, accompanied by sound business plans ensuring long-term economic viability.

5. Risk Management: Implementing robust risk management systems that align with the size and nature of the institution's proposed business.

Preparing Your Application

Before formally submitting your application, engaging with MAS to discuss your plans is highly advisable. Early dialogue can help identify potential issues that may impact your application. For comprehensive instructions and guidance, refer to the MAS website or feel free to reach out to us for expert assistance. We're here to guide you through the intricate process of obtaining a banking license in Singapore.

Capital Markets

Within the expansive world of finance, capital markets hold a prominent position. Regulated by the Monetary Authority of Singapore (MAS), capital markets encompass a diverse array of institutions and activities. Here's an in-depth look at the intricacies of this sector:

Types of Institutions Covered

Singaporean law designates the following business types as capital markets institutions, each necessitating relevant licenses:

1. Capital Markets Service Provider: Entities engaged in this category can provide a spectrum of payment services, including account issuance, money transfer, international money transfer, merchant acquisition, money-changing, e-money issuance, and digital payment token services. However, specific transaction thresholds apply to these services.

2. Collective Investment Schemes (CIS) Trustee: Firms acting as trustees for CIS authorized for offer to retail investors and constituted as a unit trust.

3. Fund Management Company: Entities raising and managing third-party investors' funds in a CIS.

4. Trust Company: Firms offering trust services such as trust creation, acting as trustees, or providing trust administration services.

5. Exchange; Market Operator: These entities operate organized markets for securities, derivatives contracts, or units in a CIS. Systemically important markets fall under MAS's jurisdiction as Exchanges, while others may be regulated as Market Operators. Exchanges face more stringent obligations and heightened scrutiny.

6. Clearing House: Entities providing clearing or settlement services within Singapore.

7. Trade Repository: Institutions offering trade reporting services to facilitate participants' compliance with MAS's reporting mandate.

8. Benchmark Administrator: Entities administering designated groups of securities.

Licensing Regime

MAS oversees all the activities mentioned above and mandates specific licenses or approvals. The predominant license in this sector is the Capital Markets Services (CMS) License, which applies to regulated activities such as:

- 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.

Therefore, any company planning to conduct these regulated activities must secure a CMS license.

Admission Criteria

When evaluating an application for a CMS license, MAS considers several factors:

1. Fitness and Propriety: The assessment includes the applicant, its shareholders, and directors.

2. Track Record and Management Expertise: This assessment extends to the applicant, its parent company, or major shareholders.

3. Minimum Financial Requirements: This includes the applicant's financial soundness and capacity to meet minimum financial prerequisites.

4. Risk Management and Compliance Systems: MAS evaluates the strength and adequacy of the applicant's internal risk management and compliance systems.

5. Business Model and Plans: This encompasses projections and associated risks.

Before proceeding with your application, your company must appoint:

- A minimum of two directors, with at least one being a resident of Singapore.

- A Chief Executive Officer with at least ten years of relevant experience, resident in Singapore.

- A minimum of two full-time Singapore-based individuals for each regulated activity.

Application Fee

To initiate your CMS license application, a non-refundable fee of $1,000 is required.

Processing Time

In straightforward cases with comprehensive applications, MAS typically reviews and processes applications within four months. However, more complex cases or those with incomplete or inaccurate information may necessitate additional review time.

Financial Advisory

In the realm of financial advisory services in Singapore, a Financial Adviser (FA) license regulated under the Financial Advisers Act (FAA) is the prerequisite. Below, we explore the breadth of services covered, exemptions, and the essential criteria for obtaining an FA license:

Types of Services Covered

The financial advisory landscape encompasses a wide range of services, including any financial advisory service unless exempted. Exemptions are typically granted to institutions covered by more stringent licenses than the FA license. Exemptions are extended to:

- Banks licensed under the Banking Act.

- Insurance companies licensed under the Insurance Act.

- Holders of a CMS license.

- Finance companies with exemptions to provide financial advisory services under the Finance Companies Act.

- Approved exchanges or recognized market operators for financial advisory services incidental to their operations.

Licensing Regime

The FAA regulates financial advisory services in Singapore, requiring entities to secure an FA license. The admission criteria for an FA license involve:

1. Fitness and Propriety: Evaluation of the applicant, its shareholders, and directors.

2. Track Record and Management Expertise: Assessment of the applicant, its parent company, or major shareholders.

3. Minimum Financial Requirements: Ensuring the applicant meets prescribed financial prerequisites and professional indemnity insurance requirements.

4. Strength of Internal Compliance Systems: Review of the applicant's compliance systems.

5. Business Plans and Projections: Assessment of the applicant's business plans and projections.

Prior to applying, your company must appoint:

- A minimum of two directors, with at least one being a Singapore resident.

- A Chief Executive Officer with at least ten years of relevant experience, including five years in a managerial capacity, and Singapore residency.

- A minimum of three full-time Singapore-based individuals with at least five years of relevant working experience.

Capital Requirements

The minimum base capital requirement for companies issuing or promulgating research analyses or research reports concerning investment products is S$250,000. For all other types of financial advisory activities, the minimum is S$500,000. Alternatively, you can maintain a lower base capital of S$300,000 coupled with additional professional indemnity insurance of S$500,000.

Application Fee

To initiate your FA license application, a non-refundable fee of S$500 is required.

Processing Time

MAS typically reviews and processes FA license applications within four months for straightforward cases. Complex applications or those with incomplete or inaccurate information may require additional processing time.

Insurance

Types of Services Covered

The insurance category encompasses a spectrum of insurance-related businesses, each requiring specific licenses:

1. Direct Insurers (Life): These companies underwrite life policies, long-term accident and health policies.

2. Direct Insurers (General): These companies underwrite all insurance business except life policies and long-term accident and health policies.

3. Direct Insurers (Composite): These firms underwrite both life and general insurance business.

4. Reinsurers: Reinsurers engage in underwriting life or general reinsurance business in Singapore. They cannot underwrite direct business but can assume all or part of the insurance or reinsurance risk from another insurer.

5. Captive Insurers: These companies underwrite insurance business primarily consisting of risks related to their affiliated corporations.

6. Company Established under Lloyd's Asia Scheme: Foreign companies can conduct insurance business in Singapore through locally incorporated service companies registered with Lloyd’s of London (Asia) Pte Ltd, the approved Administrator of the scheme.

7. Approved Marine, Aviation, and Transit (MAT) Insurers: These insurers do not maintain a physical presence in Singapore and do not underwrite insurance business. They primarily handle the collection or receipt of premiums related to MAT insurance business.

8. Authorised Reinsurers: Without a physical presence in Singapore, authorised reinsurers provide reinsurance of liabilities under insurance policies to individuals in Singapore. They can be authorised as general reinsurers or life reinsurers.

9. General Insurance Agents: These agents facilitate insurance contracts for direct general insurers.

All the activities listed above fall under the regulatory purview of MAS and necessitate obtaining specific licenses. We will delve into one of the most common types of licenses applicable to direct life and general insurers.

Licensing Regime

Admission Criteria

MAS evaluates applications for direct life and general insurance licenses based on several criteria:

- Domestic and International Rankings: This involves the applicant's rankings by factors like premiums and assets.

- Credit Ratings: Past and present credit ratings by international rating agencies.

- Track Record and Financial Soundness: The applicant's reputation, financial soundness, and compliance with home regulations. In this regard, MAS collaborates with the applicant's home supervisory authority.

- Experience and Expertise: Expertise in areas like product innovation, use of alternative distribution channels, and specialization in niche fields.

- Business Strategy: The presence of a well-developed business strategy and comprehensive plans that reflect the business's risk profile.

- Risk Management Systems: The presence of robust risk management systems and processes aligned with the business's size and complexity.

- Fitness and Propriety: The assessment extends to the licensee, any director, key executive personnel, substantial shareholders, and individuals with effective control over the licensee.

Before You Apply

Prior to submitting a formal application, it is strongly recommended to establish contact with the Insurance Department of MAS to discuss your plans.

How to Apply

To initiate the application process, you should submit the "Application to Carry on Insurance Business in Singapore" to MAS.

Application Fee

The application fee is non-refundable and calculated on a case-by-case basis by MAS.

Processing Time

Processing and approval typically take around 6 to 8 weeks following MAS's receipt of a complete application. The exact processing time varies based on each company's circumstances and the completeness of the submitted information.

Summary

The Monetary Authority of Singapore (MAS) stands as an integrated financial supervisor, committed to fostering a sound financial services sector in Singapore. Its purview extends to meticulous oversight of all financial institutions, encompassing banks, insurers, capital market intermediaries, financial advisors, stock exchanges, and more. MAS's mandate revolves around achieving a harmonious balance between consumer protection and innovation within the financial market.

Should you be contemplating a financial services-related venture in Singapore, the experienced team at Global Offshore Company stands ready to provide essential information, assist in setting up your company, and facilitate the application process for the relevant business license.

With this comprehensive guide, we trust that you now possess valuable insights into the intricacies of financial services licensing and regulations in Singapore. Armed with this knowledge, you can navigate this dynamic landscape with confidence and make informed decisions for your financial ventures in this thriving economic hub.

Disclaimer

This guide serves as a reference tool and should not substitute legal advice. For tailored guidance, consult G.O.C's customer services.