Mister Exam CMFAS Guide - C2 - Financial Advisers Act & Financial Advisers Regulation

CMFAS M5 Chapter 2 - Financial Advisers Act and Financial Advisers Regulation

Financial Advisers Act (FAA)

governs financial advisory activities in respect of investment products, and the distribution or marketing of life policies and collective investment schemes, such as unit trusts
consolidates various Acts into a single legislation
provides a consistent set of requirements and regulations for intermediaries engaging in similar activities across investment products
provides an integrated regulatory framework and ensures consistency in requirements and uniform standards across institutions providing financial advice

Financial Advisers Regulations (FAR)

is a subsidiary legislation to give effect to the provisions of the FAA and sets out the rules on the application of the FAA
provides for exemptions from the requirements relating to licensing, approval or registration requirements, the application of the provisions under the FAA

Financial Advisers (Amendment) Act

principally comprises minor policy changes and technical modifications to clarify the Authority’s administration of the FAA
improved the language of the FAA for the better administration of the FAA, and the consistency of requirements in the FAA with those in the SFA

4 key principles of FAA and FAR [p.13]

Customers’ Interest:
Consistency: financial advisers from different distribution channels would be subject to the same rules and standards.
Accountability
Independence

Changes Made by FAA:

a single licensing regime for persons engaging in financial advisory activities
raising the standards of financial advisers and representatives - impose business conduct requirements and minimum entry and examination requirements on them respectively
the use of the term “financial adviser” and “life insurance broker” are restricted to persons who hold a financial adviser’s licence or are exempt financial advisers
licences granted to financial advisers and their representatives are valid for a period of three years
obligation to disclose product information on investment products and to have a reasonable basis for any recommendation made with respect to any investment product

Financial Adviser vs Financial Planner:

MAS regulates all financial planning activities relating to securities, futures and insurance
Tax, retirement and estate planning activities do not come under MAS’ supervision

Types of “financial advisory service” regulated under FAA include:

advising others, either directly or through publications or writings, and whether in electronic, print or other form, concerning any investment product;
advising others by issuing or promulgating research analyses or research reports, whether in electronic, print or other form, concerning any investment product;
marketing of any collective investment scheme; and
arranging of any contract of insurance in respect of life policies, other than a contract of reinsurance.

Investment products mean:

any capital markets product as defined in Section 2(1) of the Securities and Futures Act;
any life policy; or
any other product as may be prescribed. Note: With effect from 2 December 2005, MAS has prescribed structured deposits as an investment product.

Exclusions

General Insurance policies
Life Reinsurance
Banks Deposits
Loans and Mortgages

Requirements for Granting Financial Adviser’s Licence
The financial adviser’s licence will be granted only to a corporation. Applicants for the licence will have to satisfy licensing criteria, relating to:

financial resources;
competence and expertise; and
must satisfy MAS that it would discharge its duties efficiently, honestly and fairly.

Exempt Financial Advisers:
Section 23 of the FAA provides that the following persons shall be exempted from holding a financial adviser’s licence:

banks licensed under Banking Act;
merchant banks approved as financial institution and approved to carry on a business of providing any financial advisory service under the Monetary Authority of Singapore Act;
companies/societies registered under the Insurance Act;
holders of a capital markets services licence under the Securities and Futures Act;
a finance company which has been granted an exemption from Section 25(2) of the Finance Companies Act to carry on a business of providing any financial advisory service;
a securities exchange, a futures exchange, a recognised market operator, or an approved holding company, in respect of the provision of any financial advisory service that is solely incidental to its operation of a securities market, a futures market, or to its performance as an approved holding company, as the case may be; and
such other persons or classes of persons as may be prescribed.

Representatives of Financial Advisers

A representative’s licence will only be granted to a natural person who satisfy the following requirements:

be at least 21 years old;
satisfy the minimum academic qualification of at least 4 GCE ‘O’ level credit passes;
satisfy the fit and proper criteria;
satisfy the prescribed minimum examination requirements; and
satisfy any other criteria stipulated by MAS.

Opportunity To Be Heard applies to the 3 situations:

Requirements For Grant Or Renewal Of Representative’s Licence
Lapsing, Revocation, Suspension And Expiry Of Licence
On Application For Approval To Be CEO Or Director

The Authority may refuse to grant or renew the representative’s licence on the following grounds WITHOUT giving the applicant an opportunity to be heard:

the applicant is an undischarged bankrupt, whether in Singapore or elsewhere;
a prohibition order under Section 59 has been made by the Authority, and remains in force against the applicant;
the applicant has been convicted, whether in Singapore or elsewhere, of an offence:

involving fraud or dishonesty or the conviction for which involved a finding that he had acted fraudulently or dishonestly;
punishable with imprisonment for a term of three months or more.

Return Of Licence Upon Cessation - Within 14 Days

Duration of Licence – 3 Years

One Representative One Principal Rule

No licensed representative shall at any one time, be a representative of more than one financial adviser. The objectives of this prohibition are two-fold:

secure clarity for investors ; and
ensure that the principal monitors and supervises their representatives at all times.

However, a licensed representative may be a representative of more than one financial adviser if the financial advisers are related corporations.

CEO and Directors of Licensed Financial Advisers

MAS’ approval is required prior to their appointment
MAS may direct the company to remove such an officer from his office if the MAS thinks it necessary in the public interest or for the protection of investors to do so

Receipt of Clients' Money or Property

“Client’s money or property” means money received or retained by, or property deposited with, a licensee for which he is liable to account to another person
Money received must be given to the right party
Money must be handed over not later than the next business day unless the licensee has client’s prior written consent to hand over after the specified date
Financial Adviser shall not receive client’s money or property in the form of cash or cheque made payable to any person (other than a person referred to in 15.2 (a), (b) or (c),) except where the cash or cheque is for services rendered by the financial adviser.

Insurance Broking Premium Accounts
Financial advisers which receive any insurance monies are required to establish and maintain a separate account with a bank licensed under the Banking Act for its life insurance broking premiums.

A financial adviser which receives any payment which is due to the insurer is required to pay the amount to the insurer within the credit period.
Interest earned during the credit period may be retained by the financial adviser for its own benefit with the insurer’s prior consent.
Interest earned after the credit period shall not be retained by the financial adviser for its own benefit and shall immediately be paid to the insurer to whom such payment is due.
Interest earned, which is due to an insurer under a contract of insurance (including a contract of insurance that has been cancelled) where cover commences before the appointed day, may be retained by the financial adviser for its own benefit.

Restriction on Granting Unsecured Loans. Section 24(3) provides that no financial adviser shall grant unsecured advance, unsecured loan or unsecured credit facility to:

a director of the licensed financial adviser, other than a director who is its employee; or
any other officer or an employee of the licensed financial adviser (including a director who is its employee) or any of its representatives which, in the aggregate and outstanding at any one time, exceeds $3,000 or such other amount as may be prescribed.

Obligation to Furnish Information to MAS:

A licensed financial adviser is required to prepare and lodge statements of accounts in accordance with the provisions of the Companies Act
Exempt financial advisers have to lodge returns such as a notice of commencement of business as a financial adviser or a notice of change of particulars

Placement of Risk with Unregistered Insurers

No licensed or exempt financial adviser shall negotiate any contract of insurance, whether directly or indirectly and placement of risk with unregistered insurers except where specifically permitted by MAS.
It does not apply to reinsurance, businesses relating to risk outside Singapore or such other risks as may be prescribed.
Individuals are not prohibited from purchasing life policies from unregistered overseas insurers. However, financial advisers are required to seek MAS’ approval should they wish to place their clients’ life insurance risks with unregistered overseas insurers.
This is to ensure that no financial adviser is being used by unregistered overseas insurers to assist them to write domestic Singapore risks, since unregistered overseas insurers are not allowed to write domestic Singapore risks.

Market Value, in relation to assets refers to securities listed on a securities exchange, means:

the last transacted price of the securities on the preceding business day
if there was no trading on the immediately preceding business day, the lower of the transacted price and last bid price of the securities; or
if there was no trading in the immediately preceding 30 days, the estimated value of those securities as approved by the MAS

Representations by Licensees:

FAA deals with representations by a financial adviser in relation to a proposed contract of insurance with the insurer.
It sets out the code of conduct that the financial adviser has to operate.
With respect to proposed contract/claim of insurance, the financial adviser cannot provide false or misleading information, or omit to disclose any matter that is material to the insurer.
A financial adviser shall not engage in any professional conduct involving fraud or dishonesty, trustworthiness or compromises its integrity.

Disclosure of Certain Interests in Securities

The financial adviser has a duty to disclose potential and actual conflict of interest to his clients or prospects. Prior to establishing a client relationship, a financial adviser should:
disclose all material information or facts that might compromise its objectivity or independence or impair its ability to make unbiased and objective recommendations; and
fully disclose to the clients its relationship with the financial institutions whose products it is providing advice on or recommending
Where such conflict of interest situations cannot be avoided, the financial adviser should ensure that its clients are treated fairly and equitably
Enter change in interest in securities within 7 days from date of change

Offences:

Any officer, auditor, employee or agent of a licensed financial adviser or an exempt financial adviser who wilfully omits, makes a false entry or alters document or statement of the business of the financial adviser shall be guilty of an offence and be liable on conviction to a fine not exceeding $100,000 or to imprisonment for a term not more than 2 years or to both.
Throughout the FAA, various provisions have stipulated the penalty to the body corporate.
In less serious offences, these offences may be compoundable under FAA.

Officer in relation to a body corporate means [p.37]:

director
member of the committee of management
chief executive
manager
secretary or other similar officer of the body, or
a person purporting to act in any such capacity

Officer in relation to an unincorporated association means [p37]:

president
secretary
members of the committee of the association
persons holding positions analogous to the above

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