Financial Advisers Act and Financial Advisers Regulations Overview

Financial Advisers Act (FAA)

Overview of FAA

  • Mission of the Monetary Authority of Singapore (MAS):

    • Sustain non-inflationary economic growth.

    • Promote a sound and progressive financial services sector.

  • Implementation Date: 1 October 2002.

  • Purpose:

    • Regulate the sale of investment products in Singapore.

    • Consolidates previous regulations: Securities Industry Act, Futures Trading Act, and Insurance Intermediaries Act.

    • Provides consistent requirements and regulations for financial advisory services across investment products.

Scope of FAA

  • Governs financial advisory activities for:

    • Investment products (e.g., life insurance, collective investment schemes).

    • Business conduct of financial advisers.

  • Regulatory Updates: Several amendments to align with changes in the financial environment.

Financial Advisers Regulations (FAR)

  • Effective Date: Also 1 October 2002.

  • Function:

    • Implements FAA provisions and establishes application rules.

    • Provides exemptions and requirements related to licensing and registration.

    • Regular updates on regulations through the MAS website.

Principles of the FAA and FAR

A. Customers’ Interest

  • Financial advisers must prioritize customer interests.

  • Ethical advice with a reasonable basis for recommendations to fit the client's financial situation.

  • Know Your Client (KYC):

    • Understand financial objectives, risk tolerance, etc.

    • Needs analysis to propose suitable investment products.

    • Document client interactions and recommendations.

B. Consistency

  • Integrated regulatory framework across financial services industries.

  • Same rules for the same products regardless of the distribution channel.

  • Similar products follow comparable rules (e.g., life insurance vs. unit trusts).

C. Accountability

  • Clear delineation of responsibility through the representative-to-principal model.

  • Representatives act for only one principal at a time to avoid conflicts.

  • Ensures clarity to clients about who is responsible for the advice given.

D. Independence

  • Advisers must demonstrate independence while providing objective advice.

  • Regulation on using the term "independent" ensures no product bias occurs.

Financial Adviser’s Licence Requirement

  • Section 6(1) of FAA:

    • No financial advisory service can be provided by unlicensed individuals.

  • Exempt Financial Advisers: Certain entities like banks and merchant banks are exempt from licensing.

Exempt Financial Advisers

  • Defined under Section 20(1) of the FAA, including:

    • Licensed banks, merchant banks, insurance companies, and specific other licensed entities.

Excluded Financial Advisers

  • First Schedule of FAA identifies entities such as:

    • Advocates and solicitors providing incidental advisory services.

    • Accounting corporations with incidental advisory roles.

Types of Financial Advisory Services (Second Schedule of the FAA)

  • Advising on investment products excluding corporate finance.

  • Arranging life insurance contracts.

Regulated Products

  • Investment products as defined in Section 2(1) include:

    • Capital market products.

    • Life insurance policies.

  • Excluded Products: General insurance products, loans, deposits.

Application for Financial Adviser’s Licence

  • Requirements:

    • Form application with non-refundable fee.

    • Applicant’s track record, financial soundness, internal compliance strength.

  • Once issued, the license remains valid unless conditions for revocation apply.

Professional Indemnity Insurance (PII)

  • Required for licensed financial advisers to protect against liabilities arising from advisory services.

Exempt Persons and Criteria

  • Exempt persons must meet ongoing fit and proper criteria.

  • Operational requirements include having adequate resources and compliance arrangements.

Accredited and Qualified Investors Defined

  • Accredited Investors typically include wealthy individuals or corporations with significant assets.

  • Qualified Investors definition includes those involved with accredited investors or certain investment products limited to accredited clientele.

Terminology and Compliance

  • Use of terms such as "financial adviser" and "independent" is tightly regulated to prevent misleading representations.

Notification Framework for Representatives (RNF)

  • Introduced on 26 Nov 2010, allowing principals to appoint representatives without individual licensing.

  • Public Register: Representatives’ names listed for public verification.

Representatives in FAA

  • Defined as individuals acting on behalf of financial advisers.

  • Appointed vs Provisional Representatives:

    • Appointed representatives must meet qualifications, while provisional representatives have a grace period to pass exams.

Responsibilities of Principals

  • Ensure representatives are fit for duty and supervise their actions effectively.

  • Notify MAS of changes in representative statuses promptly.

MAS Authority to Regulate

  • Can refuse to register representatives or revoke licenses based on various criteria, including fit and proper assessments and past performance.

Conclusion

  • Familiarity with FAA and its subsidiary regulations is crucial for financial advisers and representatives to operate successfully in Singapore's financial advisory landscape.