Singapore: licensing of financial institutions. Part 2

All financial institutions in Singapore that provide financial services are obliged to have a license approved by the MAS. Today we will find out what licensing requirements they must face.

It is necessary to obtain a license for every regulated activity in case a financial institution carries out several regulated activities. However, an institution can be excused from getting a license for a regulated activity that is incidental to its main regulated activity. For example, a fund management company is allowed to deal in securities for investments under the funds it manages without the need to obtain a CMS license.

Starting with some general conditions, all financial institutions in Singapore need to have a status of the corporation and hold a physical office in the country. The MAS also ensures that the positions of substantial shareholders and key officers of the corporation are held by suitable candidates.

Financial institutions must take into consideration the nature of their services, scale, complexity in order to invent appropriate arrangements for their operations. It is important to mention that an institution can outsource many functions, but it must carry out the core activities itself.

Once all of these conditions are fulfilled, specific requirements for particular licenses come into focus.

Banking license

Operations and paid-up capital of SGD 1.5 billion are necessary for obtaining a banking license. It important to remember that there many types of them for different banks:

  • full banks
  • qualifying full banks (certain restrictions may apply)
  • wholesale banks (are not obliged to process Singapore dollar retail banking activities)
  • merchant banks (only allowed to conduct lending, private banking, asset management, securities dealing, investment banking services; also are restricted to servicing qualified investors).

Payment services license

Standard payment institutions or major payment institutions apply for a license to be able to provide one or several specific payment services:

  • account issuance service
  • domestic money transfer service
  • cross-border money transfer service
  • e-money issuance service
  • digital payment token service
  • merchant acquisition service.

When it comes to licensing requirements, the executive director of the payment institution must have citizenship or a permanent residence in Singapore. Alternatively, if another director is a citizen or permanent resident of the country, it is enough to have an employment pass for the executive director.

A standard payment institution is required to hold the base capital of SGD 100,000. As for a major payment institution, it has not only to have the base capital of SGD 250,000 but also maintain a security deposit of up to SGD 200,000 with the MAS.

Capital markets services license

CMS licenses are granted to entities that conduct special regulated activities such as dealing in capital markets products or managing funds. While it is allowed to have a CMS license for several activities, the authorities will probably take measures to prevent or ease conflicts of interests.

In order to obtain this type of license, financial institutions need to have:

  • two directors
    • an executive director with a residency in Singapore
    • a CEO with a residency in Singapore
  • two relevant professionals with a residency in Singapore
  • two representatives.

All of them must at least have five years of experience in the industry. In fact, all of these positions can be filled by only two individuals: both of them are directors and residence of Singapore, conduct regulated activities, have more than five years of experience.

As for the capital requirements, the amount of base capital depends on the regulated activity conducted by the CMS license holder and on the type of customers the institution is serving. A base capital of SGD 250,000 is assigned to the institutions that provide fund management services and only work with accredited institutional investors. For dealing in capital markets products it is required to have at least SGD 50,000 for an introducing broker and up to SGD 5 million when it comes to a member of an approved clearing house.

An important addition: fund management companies with less than 30 investors and less than SGD 250 million in assets are not obliged to obtain a license. However, other conditions stay the same: SGD 250,000 of the base capital and two individuals with at least five-year experience.

Financial adviser’s license

A licensed company that provides financial advice must have:

  • two directors               (one must be a Singapore resident)
  • two representatives
  • possibly three full-time professionals.

All of them besides the representatives are required to have a least five years of relevant experience.

Speaking of the base capital, the financial adviser needs to have SGD 250,000 if a company only advises others by issuing or propagating research analyses or research reports concerning investment products. For other kinds of financial advisory activities, the amount might go up from SGD 300,000 to SGD 500,000. The MAS might also require additional professional indemnity insurance of SGD 500,000.

Does going through the application process seem daunting to you? In COREDO we assist our clients to complete the required forms with diligence and professional knowledge.