The Financial Advisers Act: Exemption from the Requirement to Hold a FA License

Written by Jason Kang

Almost twenty years ago, the Financial Advisers Bill was tabled in the Parliament of Singapore, the primary intention of which is to: –

“… govern all financial advisory activities in respect of investment products and the marketing of specific investment products, namely, life insurance policies and collective investment schemes across all financial institutions, from banks, life insurance companies and insurance brokers, to independent advisers”.[1]

Against that backdrop, the Bill in turn was passed as the Financial Advisers Act (Cap 110) (“FAA”). It imposes a common set of requirements and regulations that applies to all market intermediaries engaging in financial advisory services; the objective of this legislation is to help maintain consistent professional standards across the industry.[2] Among these is the requirement for companies to either hold a financial adviser’s license (“FA license”) in carrying out financial advisory services, unless the company is qualified for exemption and has successfully applied for exemption status.[3]

In this article, we will specifically explore the meaning of “financial advisory services” under the FAA, the scope of the FAA, and, who qualifies for an exemption from the requirement of holding a FA license.

What are “financial advisory services”?

“Financial advisory services” is specifically defined under Schedule 2 of the FAA. In short, it encapsulates the following services:

  • Advising others by issuing or promulgating research analyses or research reports, whether in electronic, print or other form, concerning any investment product;
  • Arranging of any contract of insurance in respect of life policies, other than a contract of reinsurance; and
  • Advising others concerning any investment product[4], which currently includes:
    1. spot foreign exchange contracts other than for the purposes of leveraged foreign exchange trading;
    2. life policies of any kind; and
    3. ‘Capital markets products’, which in turn are defined as follows:[5]
      1. Securities;
      2. units in a collective investment scheme;
      3. Over-the-counter derivatives contracts; and
      4. Spot foreign exchange contracts for the purposes of leveraged foreign exchange trading.

Who is a ‘financial adviser’ regulated under the FAA?

Section 2 of the FAA defines a ‘financial adviser’ as “a person who carries on a business of providing any financial advisory service”, which is extremely broad.

The practical effect of Section 2, read together with Section 6 of the FAA, is as follows: if you intend to provide any advisory services above, you have to either apply for a FA license, OR, apply for exemption from the requirement to hold an FA license.

Who qualifies for an exemption from the requirement of holding an FA license?

An exhaustive list of companies exempted from the requirement of holding an FA license is provided for under Section 23(1) FAA.[6]

You do not have to apply for an FA license if you are:-

(a) A licensed bank;

(b) A licensed merchant bank;

(c) A company or co-operative society licensed under the Insurance Act (Cap. 142);

(d) A holder of a capital markets services license (i.e., a Licensed Fund Management Company or Venture Capital Fund Manager);

(e) A finance company which has been exempted from Section 25(2) Finance Companies Act (Cap. 108) to provide any financial advisory service;

(ea)  An approved 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 an organised market, or to its performance as an approved holding company, as the case may be; and 

(f) such other persons or classes of persons as may be prescribed.

If you do not have to apply for an FA license, you would have to make a written notice to the Monetary Authority of Singapore (“MAS”) that you wish to commence business in regulated activities under the FAA. The type of written notice that is required depends on which category of exempted entity your institution belongs to.

Which parts of the FAA apply to entities exempted from requiring an FA license?

Generally, the following provisions are applicable to different entities exempted from requiring an FA license (unless MAS has specifically exempted you from the requirement to comply with any of them):

Sections of the FAACategory of exempted financial advisers the section applies to (refer to the list in ‘Who qualifies for an exemption from the requirement of holding an FA license?’)Description
25

(a) – (e)

(ea)

Obligation to disclose all material information relating to any designated investment product to every client and prospective client.

26

(a) – (e)

(ea)

Liability for damages arising from false or misleading statements as to:-

·         any amount that would be payable in respect of a proposed contract in respect of any investment product;

·         the effect of any provision of a contract or a proposed contract in respect of any investment product; or

·         the provision of any financial advisory service.

27

(a) – (e)

Liability for damages arising from the making of a recommendation of any investment product to a person without a reasonable basis for making that recommendation to the person concerned.

28

(a) – (e)

Obligation to observe MAS’s regulations as to the handling of client’s money or property.

29

(a) – (e)

Obligation to furnish to MAS with information about any matter related to its business as and when MAS makes a written request to do so.

32

(a) – (e)

Obligation to establish and maintain a separate account with a bank when receiving money:

·         from or on behalf of an insured or intending insured for or on account of an insurer in connection with a contract of insurance; or

·         from or on behalf of an insurer for or on account of an insured or intending insured.

33

(a) – (e)

Criminal liability for negotiating any contract of insurance with an insurer except with a licensed insurer.

34

(a) – (e)

Criminal liability for the making of false or misleading statements in a proposed contract or insurance (whether by the entity itself or the entity inducing the customer to do so)

36

(a) – (e)

(ea)

Obligation to make a written statement of the interests in the acquisition or disposal of specified products when sending a circular or a similar written communication that recommends the specified products concerned.

38

(a) – (e)

Obligation to establish and maintain a remuneration framework that is consistent with section 104 FAA for the purpose of:

·         reviewing and assessing the performance of its representatives and its supervisors; and

·         determining the remuneration of its representatives and supervisors.

39

(a) – (e)

Obligation to have an independent sales audit unit comprising only individuals who have the qualification or experience and perform the duties prescribed under section 104 FAA.

Are there any fees payable for an exemption application?

If you are an entity that falls under either category of (a) – (e) in the list in ‘Who qualifies for an exemption from the requirement of holding an FA license?’ above, there are no fees payable to MAS.

However, if you fall under either category of (ea) or (f) in the list in ‘Who qualifies for an exemption from the requirement of holding an FA license?’ above, and, if your appointed and provisional representatives are more than 100, you must pay an annual fee of $5 for each appointed and provisional representative as at 1st January of every year.[7]

For instance, if you are an approved exchange that offers to advise on securities as a side business, and you have employed a total of 200 appointed and provisional representatives on 1st January 2020, you will be required to pay to MAS $1000 (i.e., 200 representatives x $5).

We are experienced in applying for exemptions from the requirement to hold an FA license for exempted entities. If you require advise or guidance with an such an application, please do not hesitate to contact us.

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[1] Second Reading of the Financial Advisers Bill. Singapore Parliamentary Reports; Parliament No 9 Session No 2, Vol 73, Sitting 19 (Lee Hsien Loong)

[2] Frequently Asked Questions on the Financial Advisers Act (Cap 110) and the Financial Advisers Regulations, published 8 October 2018, accessible at https://www.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulations-Guidance-and-Licensing/Financial-Advisers/FAQ/FAA_FAQs-on-Financial-Advisers-Act-Financial-Advisers-Regulations-Notices-and-Guidelines_8-Oct-2018.pdf?la=en&hash=00BBBE4A5646E0361532CB29D091B2013F6810EA

[3] Section 6(1) FAA, accessible at https://sso.agc.gov.sg/Act/FAA2001#pr6-

[4] Excluding advising on corporate finance: Schedule 2 FAA, accessible at https://sso.agc.gov.sg/Act/FAA2001#Sc2-

[5] Defined under Section 2, Securities and Futures Act (Cap 289), accessible at https://sso.agc.gov.sg/Act/SFA2001#pr2-

[6] Section 23(1) FAA, accessible at https://sso.agc.gov.sg/Act/FAA2001#pr23-

[7] Section 23A FAA, accessible at https://sso.agc.gov.sg/Act/FAA2001#pr23A-; read with Schedule 2 FAR, accessible at https://sso.agc.gov.sg/SL/FAA2001-RG2?ProvIds=Sc2-#Sc2-

disclaimer:

The information provided herein is for informational purposes only and should not be construed as professional or legal advice. While Credence Consulting Pte. Ltd. (Credence) believes that its sources are reliable, we make no representation or warranty as to the accuracy of the contents. You should contact your legal counsel to obtain advice with respect to any particular matter raised. The opinions expressed here or through our website are the opinions of the individual author only and are not legally binding, and may not reflect the opinions of Credence or any individual partner or director.

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