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The document outlines the regulatory bodies and associations in Singapore, including the Monetary Authority of Singapore (MAS), Singapore Exchange Limited (SGX), and various associations such as the Investment Management Association of Singapore (IMAS) and the Life Insurance Association of Singapore (LIA). It details their missions, objectives, and regulatory functions, emphasizing the importance of compliance and ethical conduct in the financial services sector. Additionally, it provides an overview of the Financial Advisers Act and Regulations, highlighting the licensing requirements and principles governing financial advisory services.

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0% found this document useful (0 votes)

13 views693 pages

M5 Slides

Uploaded by

luxebagspillow

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Available Formats

Download as PDF, TXT or read online on Scribd

CMFAS Module 5

Chapter 1:
The Regulatory Bodies And Associations

5th Edition April

2020
Disclaimer
Please read this disclaimer in full before you use this e-learning module.
Using this e-learning module implies that you accept the terms of this
disclaimer.

You are permitted to use our e-learning module for your own exam preparation
purposes and we do not guarantee the correctness or completeness of material.

The information is provided on the basis that all persons accessing the site undertake
responsibility for assessing the relevance and accuracy of its content. Neither we nor
any other party (whether or not involved in producing, maintaining or delivering this
content), shall be liable or responsible for any kind of loss or damage caused to you or a
third party as a result of your or their use.

You are highly advised to read the Study Guide provided by the Singapore College of
Insurance for your exam preparation and do not solely depend on this e-learning
module as this is only a supplement to aid in your exam preparation.

Learning Objectives
1. Describe the roles, mission and principal objectives of the MAS
2. Understand the roles and regulatory functions of SGX
3. Know the objectives on IMAS and its Codes of Ethics and
Standards of Professional Conduct
4. Know the vision and mission of LIA, as well as the values under
pinning the LIA and its members
5. Know the roles of ABS and [AFA(S)]
Regulatory Bodies and Trade
Associations

Monetary Authority of Singapore Stock Investment Management

Singapore (MAS) Exchange (SGX) Association of Singapore
(IMAS)

Association of Banks in Life Insurance of Association of Financial

Singapore (ABS) Singapore (LIA) Advisers (Singapore)
[AFA(S)]
Monetary Authority of Singapore (MAS)
Under MAS Act, MAS is given the authority to regulate all monetary,
banking and financial aspects of Singapore to centralise various
monetary functions.

What is their mission?

1. Sustain non-inflationary economic growth
2. Promote sound and progressive financial services sector

4 Principal Objectives

01 02 03 04
Conduct Supervision of
monetary policy, Develop
financial services, Manage foreign
and issuance of Singapore as an
and conduct reserves
currency international
financial stability in Singapore
financial center
surveillance
Act as a central
bank of Singapore
Classification of Instruments Triggered by MAS
Have force of law and Do not have legal effect
contravention is a criminal offence
Acts – Contains statutory laws Guidelines – sets our principles or “best
practice standards”
Subsidiary Legislation – Spells out in Codes – Set out a system of rules
greater details the requirements that governing the conduct of certain
financial institutions and persons have to specified activities
adhere to

Directions – Explains specific instruction Practice Notes – guide specified

in greater details institutions or persons on administrative
procedures
Circulars – Documents for information

Policy Statements – Outlines broadly the

major policies of the MAS
Acts Administered by MAS
Acts contain statutory laws under the purview of the MAS, passed by
Parliament. These have the force of law and are published in the
Government Gazette.

• Banking Act (Cap 19)

• Business Trusts Act (Cap 31A)
• Deposit Insurance and Policy Owners’ Protection Schemes Act 2011
• Exchange (Demutualisation and Mergers) Act (Cap 99B)
• Finance Companies Act (Cap 108)
• Financial Advisers Act (Cap 110)
• Government Securities Act (Cap 121A)
• Insurance Act (Cap 142)
• Monetary Authority of Singapore Act (Cap 186)
• Money-Changing and Remittance Businesses Act (Cap 187)
• Securities and Futures Act (Cap 289)
• Trust Companies Act (Cap 336)
Tenets of Effective Regulations
The Tenets of Effective
Regulation guide the design
and formulation of 01 02
regulation and explains the Outcome Shared
MAS’ balanced regulatory Focused Responsibility
approach.

06 03
Clear & Risk
Consistent Appropriate

05 04
Impact Sensitive Responsive to
Changes &
Cycles
Tenets of Effective Regulations

The Tenets of Effective Regulation flows from various Broad Principles of

Financial supervision (Refer to the table below).
Singapore Exchange Limited (SGX)
The first demutualised, integrated securities and derivatives
exchange in the Asia Pacific

SGX-ST SGX-DT
(SGX Securities Trading Limited) (SGX Derivatives Trading Limited)

 The only integrated securities  One of the leading derivatives

exchange in Singapore exchanges in Asia
 Operates the first fully electronic  Offers the widest range of Asian
and floorless exchange in Asia derivatives (e.g. futures, options
 Facilitates the listing of leading on interest rates, stock indices,
companies in Singapore energy and commodities), and
international derivatives in the
Asia Pacific
SGX Regulatory Functions
Issuer Regulation Member Supervision Enforcement
 Reviews application for  Process applications  Investigates suspected
listings and permits infractions & complaints
 Monitors ongoing  Monitors members’  Discipline follow-ups
compliance with listing compliance, and
requirements investigations on their
 Supports listed compliance Catalist Regulation
companies on  Provides support on
regulatory issues regulatory issues  Promotes high standard
of discipline & corporate
governance listed
companies
Market Surveillance Risk Management
 Maintains surveillance  Monitors and manages Clearing Risk
of trading activities SGX’s counterparty risk
exposure to clear  Develops & enhances
member’s trade the risk framework for
product & service
offerings in SGX
Investment Management Association of
Singapore (IMAS)
6 Objectives:
1. To promote professionalism and exemplary practice among members
in their conduct of the investment management business
2. To provide a forum for members to discuss issues related to the
investment management industry
3. To represent members collectively in discussions with, or assist
members to make any representation or recommendation to any
government, supervisory authority, local or foreign, concerning
investment management industry
4. To promote public education on investments and fund management
industry
5. To improve professionalism and standards of research and fund
management expertise in Singapore
6. To promote investment and fund management industry
Code of Ethics and Standards of Professional Conduct
Objectives: To foster high standards of professionalism among practitioners.
Members of IMAS: Required to comply with the code and encouraged to
influence the industry to achieve higher standards of professionalism

Standards of Codes of Ethics:

Professional Conduct
This applies to:
Exercise proper
1. Investment Managers care, due
2. Business Conduct diligence and
3. Client Relations professional
4. Investment Conduct judgement

Act with Integrity and

competence; professionalism
striving to in conduct;
improve Ethical
dealings
Life Insurance Association of Singapore
(LIA)
A not-for-profit trade body of life insurance product providers and life
reinsurance providers based in a Singapore, and licensed by MAS.

What is their mission & vision?

Committed to being a progressive life
insurance industry by enhancing
consumer understanding, promoting
industry best practices and fostering a
spirit of collaboration with government
and business leaders.
Values Underpinning LIA and its members

UNIFIED to deliver innovative solutions

in striving to provide favorable outcomes to

FAIR policyholders and shareholders

OPEN & in all that they do to build an environment of trust

and transparency
HONEST

PROFESSIONAL in conduct and in giving counsel

ETHICAL in managing policyholders’ interest with integrity

in giving their people the skills and knowledge to

PROACTIVE provide sound solutions
ABS & AFA(S)

Association of Banks in Association of Financial Advisers

Singapore (ABS) (Singapore) AFA(S)
• A trade association
• Promotes and represents
representing Financial
interests of the banking
Advisers.
community in Singapore.
• Provides a forum for
• It works closely with the MAS
members to contribute to the
and other government bodies
further development of the
to develop and maintain a
financial services industry in
sound financial system
Singapore
THE END

FINISH
CMFAS Module 5
Chapter 2:
Financial Advisers Act & Financial Advisers Regulations –
Financial Advisers & Representatives
5th Edition April
2020
Disclaimer
Please read this disclaimer in full before you use this e-learning module.
Using this e-learning module implies that you accept the terms of this
disclaimer.

You are permitted to use our e-learning module for your own exam preparation
purposes and we do not guarantee the correctness or completeness of material.

You are not allowed to print and download material provided or to modify any content
without our consent. Any and all material must not be republished online or offline
without our permission. The copyright and other intellectual property rights in all
material are not be reproduced without our prior consent.
Chapter Outline
1. Financial Advisers Act (FAA)
2. Financial Advisers Regulations (FAR)
3. Principles Of The FAA And FAR
4. Need For Financial Adviser’s Licence
5. Application For Grant Of Financial Adviser’s Licence
6. Exempt Persons (Third Schedule Of The FAA)
7. Use Of The Term “Financial Adviser” Or “Life Insurance Broker”
8. Use Of The Term “Independent”
9. Launch Of Representative Notification Framework (RNF)
10. Who Are Representatives?
11. Appointed Representative
12. Provisional Representative
13. Differences Between Appointed Representative And Provisional
Representative
14. Notification Procedure
15. Power Of The MAS To Refuse Entry Or Revoke Or Suspend Status Of
Appointed Or Provisional Representative
16. Power Of The MAS To Impose Conditions Or Restrictions
17. False Statements In Relation To Notification of Appointed Or
Provisional Representative
18. Appeals
Learning Outcomes
• Understand the principles and requirements of the FAA and the
FAR, including the:
o financial adviser’s licence
o exempt persons
o use of the terms “financial adviser”, “life insurance broker”
and “independent”
o Representative Notification Framework (RNF)
o representatives
o notification procedure
o power of the MAS
o penalties for false statements
o appeals
Financial Advisers Act (FAA) & Financial
Advisers Regulation (FAR)
Financial Advisers Act Financial Advisers Regulations
(FAA) (FAR)
1. Consolidates all previous 1. Subsidiary legislation
regulatory regimes governing the 2. Sets out the rules on the
provision of giving of financial application of the FAA
advisory services
3. Provides for exemptions from the
2. Provides a consistent set of requirements relating to licensing,
requirements and regulations for approval or registration
all who are engaged in similar requirements, the application of
activities across investment the provisions under the FAA
products
3. Governs the business conduct of
persons providing financial
advisory services
2. Consistency
Key Principles of FAA &FAR
 Type 1 – consistency must apply to
1. Customers’ Interest processes for the same product. Same
investment product e.g. life insurance,
“KNOW YOUR CLIENT” advisers from different channels would
 Financial Advisers should give due follow same rules and standards.
regard to the interests of the customers  Type 2 – consistency applies to the sale
 Provision of financial advice must be of similar product. E.g. single premium
conducted in a fair, professional and ILP and UT would be subject to similar
ethical manner rules and standards
 Ensure that due consideration has been
given to the person’s investment
objectives, financial situation and 4. Independence
particular needs.

 This concept is an important condition

3. Accountability for customer interests by giving good
objective advice and be guided by the
• This is to ensure that there is a higher- concept of reasonable basis in providing
level entity who would be accountable advice.
for the professional and ethical conduct
 Refer to principles and guidelines on the
of a representative of the financial
determination of “independent”.
adviser.
Need for Financial Adviser’s License
Section 6(1) of FAA
No person shall act as financial adviser in respect of financial advisory
service unless he has a FA’s licence, or is an exempt FA

Section 22 (1) of FAA

No person shall hold himself out to be a financial adviser unless he is a
licensed FA, an exempt FA, or an Excluded FA (under the First Schedule
of FAA)

In essence, a corporation needs a license to

operate, unless they are being exempted.
Who is a Financial Adviser?

Section 2(1) of the FAA:

A person who carries on the business of
providing any financial advisory service,
but does not include any person
specified in the First Schedule.

PERSON refers to a CORPORATION

and NOT an individual.
Types of Financial Advisers

Licensed FAs A corporation that carries on the business of providing

financial advisory services

Exempt FAs & One that is exempted from holding an FA licence to act
Reps as an FA in giving financial advisory advice (Page 17)

One that does not fall within the definition of FA under

Excluded FAs the FAA, and the advice given is solely incidental to its
licensed business. (pages 17-19)
Types of Financial Advisers Services

Advising others, directly or indirectly or through publications or writings,

whether in electronic, print, concerning an investment product

Advising others by issuing or

Arranging any contract of insurance in
promulgating research analysis, or
respect of life policies, other than a
reports concerning an investment
contract of reinsurance
product
Products Regulated Under the FAA

Any capital markets General Insurance Consumption

product1 policies Based

Spot foreign exchange

contracts other than for the Deposit taking Low Risk,
purposes of leveraged products Well Understood
foreign exchange trading

Loans and Liability

Any life policy
Mortgages Management

1Capital markets products means any securities, units in a

Any other product as may collective investment scheme, derivatives contracts, spot foreign
be prescribed exchange contracts for the purposes of leveraged foreign
exchange trading, and such other products as the MAS may
prescribe as capital markets products
Application for Grant Of Financial Adviser’s License
In assessing an application, MAS takes into consideration:

Track record, management expertise and financial soundness;

Minimum financial requirements and professional indemnity

insurance;

Strength of internal compliance systems;

Business plans and projections;

Fitness and propriety – satisfy fit and proper criteria

W.e.f 26th November 2010, all existing financial adviser’s licenses would no longer have to be renewed.
Once issued, license would continue to be valid, subject to payment of annual license fees unless
license holder ceases business, license lapses or revoked/suspended by MAS.
Need for Professional Indemnity Insurance Policy
A contract of insurance with an insurer under which a person is indemnified
in respect of the liabilities arising out of or in the course of his business as a
financial adviser.

A licensed financial adviser shall:

a) Maintain, at all times during the
currency of its license, such
minimum financial requirements;
and
b) Have in force, at all times during
the currency of its license, a
professional indemnity insurance
policy, the cover of which is
consistent with such limit and
deductible requirements.
Ground for Refusal to Grant Financial Adviser’s Licence

Section 9(1) of FAA details grounds for refusal if:

 Applicant is not a corporation
 Applicant does not have a Professional Indemnity Insurance in force
 Applicant is unable to meet or continue to meet minimum financial
requirements
 Applicant has not furnished the MAS with required information or
documents under Section 8(2) of the FAA and/or the information
furnished is false and misleading
 Applicant is in the course of being wound up or dissolved

Penalty for non-compliance: Up to S$50,000 fine

Ground for Refusal to Grant Financial Adviser’s Licence

Section 9(1) of FAA details grounds for refusal if:

 A receiver, receiver and manager, judicial manager or any equivalent
person has been appointed, in relation to, the applicant or any of its
substantial shareholders
 Applicant entered into a compromise or scheme of arrangement with
its creditors
 Execution against the applicant in respect of a judgement debt has
been returned unsatisfied
 The MAS is not satisfied with the educational qualification or
experience of the officers or employees of the applicant

Penalty for non-compliance: Up to S$50,000 fine

Ground for Refusal to Grant Financial Adviser’s Licence

Section 9(1) of FAA details grounds for refusal if:

 The MAS has reason to believe that the applicant will not perform the
functions of a financial adviser efficiently, honestly or fairly
 A prohibition order under Section 59 of the FAA has been made by the
MAS, and remains in force, against the applicant
 Applicant has been convicted of any offence under this Act
 Applicant, officers or employees fail to satisfy the fit and proper criteria
 The MAS has reason to believe that the applicant may not act in the
best interest of the clients

Penalty for non-compliance: Up to S$50,000 fine

Ground for Refusal to Grant Financial Adviser’s Licence

Section 9(1) of FAA details grounds for refusal if:

 The MAS is not satisfied with the financial standing of the applicant,
manner in which the applicant‘s business is to be conducted or record
of the past performance of the applicant
 Situation which likely lead to improper conduct of business by the
applicant, possibility of reflecting discredit in the applicant’s code of
conduct
 The Authority is of the opinion that it would be contrary to the public
interest to grant the licence
Paid up capital of S$150,000 or S$300,000

Penalty for non-compliance: Up to S$50,000 fine

Grounds For Refusal To Grant Financial Adviser’s
License Without Opportunity to Be Heard
(without opportunity to be heard)

Receiver has Prohibition Applicant in Applicant

been Order the course of convicted
appointed in wound up offence
the respect of involving
applicant’s fraud or
property dishonesty
Minimum Financial Requirements
Regulation 15 of the FAR states that for the purposes of Section 9(1)(b),
applicant shall meet the following minimum financial requirements:

Minimum Financial Requirements

In the case of providing advising In other cases than providing
others concerning futures futures contracts
contracts, contracts or
arrangement for the purpose of
foreign exchange trading.

Paid up capital of not less than Paid up capital of not less than
S$300,000 S$150,000

A licensed financial adviser shall not reduce its paid-up capital without
prior approval of the MAS. If above requirements are contravened, shall
be liable on conviction to a fine not exceeding S$25,000.
Continuing Financial Requirements
Licensed Financial Advisers
Not being a foreign company Being a foreign company
To maintain a net asset value of not less To maintain net head office fund of not less
than : than:
a. In the case where it does not have an a. In the case where it does not have an
immediately preceding financial year – ¾ immediately preceding financial year –
of the min paid up capital of $300,000 Minimum net head office funds of not less
than $300,000
b. In any other case
i ¼ of its relevant annual expenditure of the b. In any other case
immediately preceding financial year or i. ¼ of its relevant annual expenditure of the
immediately preceding financial year or
ii. ¾ of the min paid up
capital required under FAR, whichever is ii. the min net head office funds required
higher. under FAR, whichever is higher.

Definition of relevant annual expenditure :

Total expenditure of the FA for that year – (staff bonuses + employees & directors’ share of profits +
commission of reps )
Exempt Persons (Third Schedule of the FAA)

An exempt fund manager who is also an exempt financial

adviser, the total number of qualified investors and accredited
investors served should not exceed 30 in total
Pre-requisites To Be Met By Exempt Persons
Under the Securities and Futures (Licensing and Conduct of Business)
Regulations 14A (SFR) and FAR (Rg 14A), an exempt person must:
1. Fit and Proper
2. Honesty, integrity and reputation; competence and capability; and soundness
financial
3. Applicable to substantial shareholders or persons who have decision-making
power in the company
4. Maintain its operations in Singapore
5. Have adequate resources, including compliance arrangements commensurate
with the size and scale of its business activities in Singapore.
6. Strongly encouraged to employ a minimum of 2 professionals, each with at least
5 years of relevant working experience in reputable jurisdictions. At least 1 resident
CEO or executive director who exercises management oversight of its operations.
7. Demonstrate minimum financial viability, an exempt person is expected to ensure
that it is able to pay its debts in full as they fall due and that value of its assets is not
less than the value if its liabilities at all times.
8. MAS reserves the right to require additional requirements.
Representations Made by Exempt Persons
An exempt person, including its
representatives, cannot represent
itself, nor cause to be represented,
to any person as being licensed,
regulated, supervised, or
registered by the MAS, whether
verbally or in writing
Accredited and Qualified Investor
Definition

Section 4A(1)(a) of the SFA:

Definition
 Net personal assets exceed S$2million in value, or
Individual  Financial assets exceed S$1million in value
 Income in the preceding 12 months is not less than
S$300,000

Corporation  Net assets exceeding S$10 million

Trustee  Trustee of such trust as the Authority may prescribe

Accredited and Qualified Investor
Definition

Section 4A(1)(a)(iii) of the FAA:

The following trusts are prescribed:

 Any trust all the beneficiaries of which are accredited investors

 Any trust all the settlors of which:

i. Are accredited investors
ii. Reserved all powers of investment and asset
management functions under the trust
iii. The power to revoke the trust

 Any trust subject matter of which exceeds S$10 million in value

Accredited and Qualified Investor
Definition

Section 4A(1)(a)(iv) of the FAA

Definition

Entity  Net assets exceed S$10 million in value

Partnership  Every partner is an accredited investor

 Entire share capital owned by one or more
Corporation accredited investors
Person  Holds joint account with an accredited investor
Use of the Term “Financial Adviser” or “Life Insurance
Broker”
1) Only licensed or exempt financial advisers, or persons approved by
the MAS, shall:
a) Use the terms or in any language or word indicating that the person carries
on business as a financial adviser or life insurance broker or
b) Make any representation to such effect in any bill head, letter paper, notice,
advertisement, publication or writing, whether electronic, print or other
form.

2) Nothing in this section shall prohibit-

a) An appointed or provisional representative of a licensed financial adviser or
exempt financial adviser
b) A representative of an exempt financial adviser

From using the words “financial adviser” together with the word
“representative”
Use of the Term “Financial Adviser” or “Life Insurance
Broker”
3) No persons, other than-
a) A licensed financial adviser which is authorized by its licence to provide any
financial advisory service in respect of life policies
b) An exempt financial adviser which provides any financial advisory service in
respect of life policies
c) A person, approved by the Authority

Shall –
i. Use the word “life insurance broker” or any of its derivatives in any language,
indicating that the person carries on business of providing any financial
advisory service
ii. Make any representation to such effect in form of advertisement
Use of the Term “Financial Adviser” or “Life Insurance
Broker”
4) Nothing in this section shall prohibit-
a) An appointed or provisional representative of a licensed financial adviser or
exempt financial adviser which provides any financial advisory service in
respect of life policies
b) A representative of an exempt financial adviser which provides any financial
advisory service in respect of life policies

From using the words “life insurance broker” together with the word
“representative” or any other word indicating that he is a representative of a
financial adviser providing any financial service advisory in respect of life policies

Contravenes subsection (1) or (3) : Up to S$12,500 fine

Continuing offence : Up to S$1,250 fine for every day which
the offence continues after conviction
Use of the Term “Independent”
Section 21 of the FAA
Licensed FA or exempt FA shall not use the term ‘independent’ unless it
meets the conditions set out by the Authority:
Operates without any
Operates free from any
Does not receive or conflict of interest
direct or indirect
pay any commission created by any
restriction relating to
or benefit which may connection to or
any investment product
create product bias association with any
which is recommended
product provider

Every licensed FA and exempt FA shall inform all of its representatives in

writing as to whether it may or may not use the word “independent”. No
representative shall use the word if the FA has informed him not to do so.

Any FA or representative who contravenes any of the above shall be guilty

of an offence.
More details of independence is discussed in
chapter 8!
Launch of Representative Notification
Framework (RNF)

26th November 2010

Under the RNF, financial institutions intending to appoint a financial adviser
representative will have to lodge a notice of intent with the MAS and provide a
“fit and proper” certification in respect of that representative

The onus is now on the It also places a heavier

principals to accept only fit emphasis on the role and
and proper individuals as responsibilities of principals to
their representatives. ensure that their
representatives are fit and
proper.
Applicability of RNF Regime

The RNF Regime is applicable to individuals

carrying out financial advisory activities as reps
of:
a) Licensed FA; and
b) FAs which are exempted by the FAA from
having to apply for a license (banks,
merchant banks, insurance companies,
finance companies, insurance brokers and
holders of a capital markets services
licence)
RNF regime does not apply to entities which
are exempt from licensing pursuant to
regulations issued under the FAA
Public Register of Representatives
• Under the new RNF, representatives providing financial advice will have their
names recorded on a public register of representatives.
• The MAS will cease to issue licences to representatives of licensed financial
advisers.
The Public Register will include the following information of each appointed and
provisional representative
Disciplinary proceedings taken
Name by MAS against him
Any other information as
Name of current principal
prescribed by MAS
and every past principal
Where the business of the
Current and past types of principal for which he acts is
financial advisory service, carried on under a name of style
and the date of other than the name of the
commencement and principal, the name or style under
cessation which the business is carried on;

This is to:
1. Promote greater transparency
2. Encourage consumers to take their own initiatives in verifying the Representatives
Who are Representatives?

Representatives are individuals who actually perform the activities that

their principals are engaged in and for which they are regulated by the MAS
under the FAA.

Section 2(1) of the FAA

Representatives means a person by
whichever name called who
performs on behalf of the FA any
financial advisory service whether
or not he is remunerated.
Includes any officer of the FA who
performs for the FA and financial
advisory services whether or not he
is remunerated.
Representatives To Act For Only One Principal
Section 23G of the FAA states that, unless otherwise approved by the MAS
in writing, no appointed representative or provisional representative
shall at any one time be a representative of more than one principal.
However, an appointed representative may be a representative of more
than one principal if the principals are related corporations.

Objective:
1. Secure clarity for
investors Any person who contravenes the above
2. Ensure that the rule shall be guilty of an offence and
financial advisers shall be liable on conviction to:
closely monitor and (a) a fine not exceeding $25,000 or
supervise their (b) imprisonment term of not more than
representatives at all 12 months,
times (c) for continuing offence, further fine of
not exceed $2,500 for every day
Type of Representatives

Types of
Representatives

Appointed Provisional
Representatives Representatives

Appointed Representatives VS
Provisional Representatives
Similarities

Must be 21 years old; Whose status as a rep has not been

revoked;
Must be fit & proper;
Whose principal is licensed or exempted to
provide the type of FA services.
Appointed Representatives VS
Provisional Representatives
Criteria(s) Appointed Provisional
Representative Representatives
Entry & • Have to meet FULL • Have to meet full entry requirements
Examination entry AND exam ONLY
Requirements requirements • Intends to undergo exams to satisfy
exams requirements. PRs are given a
grace period of 3 months to pass requisite
exams. During the 3 month grace period,
they are allow to provide FA services.
• PP must be currently or previously
licenced, authorized or regulated for at
Differences

least 12 months (but not more than 12

months ago) in relation to a comparable
type of FA service in an overseas
jurisdiction with a regulatory regime that
is comparable to that of Singapore.
Details entered • Name is entered in • Name is entered in the Public Register as
into Public Public register as an Provisional Rep.
Register appointed • Principal has notified MAS through
representative lodgment of Form 3D (within the 3 months
grace period) the Rep’s fulfillment of
relevant exams and his name has been
entered in the Public Register as an
Appointed Rep.
Acting as Representative
No individual will be allowed to act as a representative or to hold himself
out as a representative of a financial adviser unless:

Name entered in
Public Register for
FAA
Meet Exam
Requirements

Meet Entry
Requirements
Acting as Representative
Section 23B(1) of the FAA provides that no person shall act as a representative in
respect of any type of financial advisory service or hold himself out as doing so,
unless he is:
a. an appointed or provisional representative; or
b. a representative of an exempt financial adviser referred to in Section 23(1) of
the FAA, in so far as the type, scope and manner in which the financial
advisory service provided are the same as the exempt financial adviser.

Individual Principal

• A fine not exceeding S$25,000 • A fine not exceeding S$50,000

• An imprisonment for a term not • In the case of a continuing offence, a
exceeding 12 months or both further fine not exceeding S$5,000
• In the case of a continuing offence, a for every day or part thereof during
further fine not exceeding S$2,500 which the offence continues after
for every day or part thereof during conviction
which the offence continues after
conviction
Cessation of the status of the Appointed Representative

He ceases to be the
principal’s rep or to License of principal is
Other circumstances that
provide financial advisory revoked or lapses or a
the MAS may prescribe
service on behalf of the prohibition order made
principal

Principal ceases to
The individual dies
provide type of service
Cessation of the status of the Appointed Representative

End of the period of 6months • Date his name was entered in the
starting from public register of representative

• Ceased to act as a representative

The appointed representative • Has not resumed acting as a
has done the following and representative for a continuous period
principal has yet to notify MAS of one month from the date of
cessation
Cessation of the status of the Appointed Representative

Section 23C(5) of the FAA

An individual shall not be treated as an appointed rep during the period in
which the license of his principal is suspended.

Principal

Individual No later than the next business day after

the day:
• Cease to be Representative • Furnish particulars of such cessation
• Cease to provide any type to MAS
of service • Use Form 10 from MAS website

USE FORM 10
Cessation of the status of the Provisional Representative

Section 23D(3) of FAA

Provisional representative shall immediately cease to be one:

A. upon expiry of the specified period;

B. if he fails to comply with any condition or restriction
C. imposed on him under Section 23K of the FAA; or
D. upon principal informing MAS of the satisfaction of the examination
requirements as specified for that or any other type of financial advisory
service

His principal shall inform MAS if he has satisfied the exam requirements
within 3 months.

USE FORM 3D
Notification Procedure

1. Documents to be launched with MAS USE FORM 3a & 3b

Principal who wants to appoint an individual as an appointed or provisional

representative shall lodge with MAS, the following documents:
1. Notice of intent
2. A certificate by principal that individual is fit and proper
3. In the case of provisional representative, an undertaking by the principal to
undertake responsibilities in relation to the representative

2. Entry into Public Register

Entry into the Public Register

1. MAS will enter into the public register the name of the representative, whether
appointed or provisional and the type of financial advisory service he may
provide.
2. MAS may refuse to enter if a fee is not paid
Notification Procedure

3. Retention Period for Documentation USE FORM 18

• Principal shall keep all information and document which the principal relied on
in giving the certificate for a period of 5years
• When there is a change, principal shall furnish no later than 14days after the
occurrence of change with FORM 18 to MAS

4. Undertaking of responsibilities for Provisional Representatives

• The principal shall undertake responsibilities in relation to its provisional

representatives (continue this section on the next slide)
Undertaking of Responsibilities for Provisional
Representatives
The principal shall undertake responsibilities in relation to its
provisional representatives

a) Put in place measures to properly supervise the activities and

conduct of the representative
b) Proper training to ensure that the rep understands and complies
with all Singapore laws
c) Rep is accompanied at all times by an authorized person when
meeting any client or member of the public
d) Rep sends concurrently to any authorized person all electronic mail
that he sends to any client
e) Rep does not communicate by telephone with any client or
member of the public when providing financial advisory service
other than telephone conference in the presence of authorized
person.
Power of the MAS to refuse entry or revoke or suspend
status of Appointed or Provisional Representative
Conditions for refusal to enter details in the public register:

He fails or ceases to act as He or his principal has not

a rep in respect of all the provided the MAS with He is an undischarged
types of services which he such information as the bankrupt
is appointed to MAS may require

Execution against him in He has entered into a

Has been convicted of an
respect of a judgment compromise or
offence involving fraud or
debt has been returned arrangement with his
dishonesty ; convicted of
unsatisfied in whole or in creditors that is still in
an offence under the FAA
part operation
Power of the MAS to refuse entry or revoke or suspend
status of Appointed or Provisional Representative
Conditions for refusal to enter details in the public register:

The MAS is not satisfied as

to his educational or other He or his principal fails to
qualification or experience satisfy the MAS that he is fit
in regards to the type of and proper;
service he is to provide

MAS is not satisfied of his

MAS has reason to believe
record of past performance
that he will not perform the
having regard to the nature
service efficiently, honestly
of the duties he is to
and fairly
perform
Power of the MAS to refuse entry or revoke or suspend
status of Appointed or Provisional Representative
Additional requirements for provisional representatives

MAS may refuse to enter the name and other particulars of the individual
in the public register of reps as a provisional rep if:
a) He is not or was not previously licensed, authorized or regulated as a
rep in a foreign jurisdiction for a continuous period of 12 months;
b) The period between the date of his ceasing to be so licensed in a
foreign jurisdiction and the date of his proposed appointment as a
provisional rep exceeds 12 months; or
c) The MAS is not satisfied that the laws and practices of the jurisdiction
under which the individual is or was so licensed provide protection to
investors.
False statements in relation to notification of
Appointed or Provisional Representative

• Principal or individual lodges any

documents to MAS that is false or
misleading or omits any material
information which the document is
misleading will be guilty of an offence
and liable to a fine not exceeding
S$50,000.
• Unless there is reasonable grounds
that the statement made or omission
on the matter was not false or
misleading.
Appeals
• Any person who is aggrieved by the refusal of MAS to enter his
name in the public register of representatives, he may appeal to
Minister within 30days after the notified of the decision by MAS
Summary of Forms to Submit

Purpose Form Number

Application for a Financial Adviser's License Form 1
Notification for Appointment of an
Form 3A
Appointed Representative
Notification for Appointment of a Provisional
Form 3B
Representative
Notification of the Completion of Examination
Form 3D
Requirements by a Provisional Representative
Notification for the Cessation of a Representative in any or
Form 10
all of the Financial Advisory Services

Notification to Change Particulars for a Representative Form 18

THE END

FINISH
CMFAS Module 5
Chapter 3:
FAA&FAR Conduct of Business,
Powers of Authority and Offences

5th Edition April

2020
Disclaimer
Please read this disclaimer in full before you use this e-learning module.
Using this e-learning module implies that you accept the terms of this
disclaimer.

You are permitted to use our e-learning module for your own exam preparation
purposes and we do not guarantee the correctness or completeness of material.

Division 1: General

Division 2: Life Insurance

Division 3: Securities
Division 1: General
Obligation to disclose Product information to clients

Section 25(1) together with Section 23(4) and Section 37 of the FAA

Material information relating to designated investment product that

licensed FA is recommending must be disclosed:

If product is a unit of
collective investment
Terms and Benefits to be, or Premiums, cost, scheme, name of
Conditions of the likely to be, derived charges, etc that may manager of scheme
Product from it be imposed and relationship
between manager
and licensed FA
Statements by licensed financial advisers

Section 26 of FAA

No licensed FA shall, with the intent to deceive, make a false or

misleading statement as to:
 the amount that would be payable in respect of proposed contract on
any investment product; or
 the effect of any provision of contract or a proposed contract in
respect of any investment product; or
 the connection with the provision of any financial advisory service

Contravention Section 6 of FAA:

Fine not exceeding S$50,000, or
Imprisonment not exceeding 12 months, or both
Recommendations by Licensed FA

Section 27(1), Section 23(4) and Section 37 of the FAA

A licensed FA must have a reasonable basis for making a

recommendation, with respect to any investment product, to a
person who may reasonably be expected to rely on the
recommendation, if the licensed FA does not have a reasonable
basis for making the recommendation to that person
Recommendations by Licensed FA

Section 27(2) of FAA

A licensed FA have a reasonable basis for making a recommendation if:

It has considered the information possessed by it:
(a) Concerning the investment objectives
(b) Concerning the financial situation
(c) Conduct investigation of the subject matter of the
recommendation

The recommendation is based on the

consideration and investigation referred to in (a)
Recommendations by Licensed FA

Section 27(3) of FAA

i) a licensed FA, in making a recommendation to a person,

does not have reasonable basis for making the
recommendation;
ii) the person, in reliance on the recommendation, does a
particular act, or refrains from doing a particular act;
iii) it is reasonable, having regard to the recommendation
and all relevant circumstances, for the person to do that
act, or to refrain from doing that act, in reliance on the
recommendation; and
Recommendations by Licensed FA

Section 27(3) of FAA

iv) the person suffers loss or damage as a result of doing

that act, or refraining from doing the act;
then, without prejudice to any other remedy available to that
person, licensed FA is liable to pay damages to that person in
respect of the loss or damage.
Receipt of Client’s Money or Property

Section 28(4) and Section 23(4) of the FAA

DEFINITION
‘Client’s money or property’ means
money received or retained by, or
property deposited with, a licensed
FA, in the course of his business, for
which he is liable to account to
another person.
Receipt of Client’s Money or Property

Section 28 of FAA

MAS may, by regulations:

Determine the manner the FA may receive or deal with client’s

01 money or property
States that a lien or claim on client’s money or property,

02
which may be required to be established under regulation,
shall be void, unless the moneys in the account are for fees
due and owing to the licensed FA

03 States that a charge or mortgage on client’s money or property, which

may be required to be established under regulation shall be void

not later than the business day immediately following the day on which
the licensed FA or rep receives the money or property, unless with client’s
prior written consent to hand over after the specified date.
Obligations to Furnish Information to the MAS

Section 29(1), Section 23(4) and Section 37 of the FAA

MAS may, in writing, require any

licenced FA to furnish it with information
about any matter related to its business.

Failure to comply shall be guilty of an

offence and be liable on conviction to a
fine not exceeding S$25,000 or to
imprisonment for a term not exceeding
12 months or to both. Continuing offence
shall lead to a further fine not exceeding
S$2,500 every day after conviction.
Insurance Broking Premium Accounts: Separate Accounts
Section 32(1) and Section 23(4) of the FAA

Licensed FA must maintain a separate account with a bank licensed under

the Banking Act (Cap 19) for life insurance broking premiums.

Insurance Broking Premium Account

1. Receive from insured 1. Claims

(Premium) 2. Payment to insurer in
2. Refund of Loss on relation to a contract
Investment of insurance
3. Retention of Interest 3. Deposits placed with
and Income bank
4. Deposit in error
Insurance Broking Premium Accounts
Retention of Interest or Income

Cover commences on or Payment paid to insurer may be

after Oct 1, 2002 retained by FA with insurer’s
[Regulation 20(7)] prior consent

Interest or income
Payment pad to insurer cannot
received after the credit be retained by FA.
period [Regulation 20(8)]

Credit Period
Credit period is the period within which the FA has agreed with the insurer to make
payment of any amount due to the insurer; or

90 days from the date of commencement of cover under the contract of insurance,
whichever is earlier
Negotiation & Placement of Risk with Unlicensed
Insurer
Section 33(1) and Section 23(4) of the FAA

No licensed FA or exempt FA shall negotiate any contract of

insurance with an insurer, whether directly or indirectly except
with a licensed insurer acting in the course of business, except
specifically permitted by MAS

NB. Re-insurance, and businesses relating to risk outside of

Singapore are excluded
Representations by Licensed FA
Section 34, Section 23(4) and Section 37 of the FAA

No licensed FA shall, with intent to deceive, in relation to

proposed contract of insurance/ a claim under a contract of
insurance:
 write on, or advise an intending insured to write on a form
that is given or sent to an insurer, that is material to the
contract and is false or misleading;
 omit or induce the intending insured, to disclose to the
insurer any matter that is material to the proposed
contract;
Division 3: Specified Products
Licensed FA to Disclose Certain Interest in Specified
Products
Section 36 of FAA

FAA shall avoid conflict of

interest situations, and act in
the best interests of clients.
If unavoidable, FA should
ensure client are treated fairly
and equally.
Licensed FA to Disclose Certain Interest in Specified
Products
Disclose of Potential & Actual Conflict of Interest

Section 36 (1) of FAA

Where licensed FA sends a circular or written communication in making a

recommendation on specified products, he shall include a concise
statement of the nature of any interest in, or any interest in the
acquisition or disposal of the securities that he, or a person associated
with or connected to him, has at the date the circular or written
communication is sent

Purpose: To help customers make informed decisions

Licensed FA to Disclose Certain Interest in Specified
Products
Disclose of Potential & Actual Conflict of Interest
Before establishing client relationship, FA has to disclose:

All material information or facts

that may compromise its To client its relationship with
objective or independence, or financial institutions in respect
impair its ability to make of products which it is providing
unbiased and objective advice on or recommending
recommendations; and

Contravention of Conflict of Interest

Fine S$25,000 or
Imprisonment not exceeding 12 months or both
Licensed FA to Disclose Certain Interest in Specified
Products
Register of Interest in Specified Products
Licensed FA and its Representatives are required to:

1 Maintain a register of his interest in Specified Products.

2 Enter in the register, within 7 days after the date of acquisition

of any :

Any interests in Specified Products

Particulars of the Specified Products

Particulars of his interests in those Specified

Products
Licensed FA to Disclose Certain Interest in Specified
Products
Register of Interest in Specified Products
Licensed FA and its Representatives are required to:

3 Retain that entry in an easily accessible form for a period of not

less than 5 years after the date on which such entry was first
made

4 ensure that a copy of the register is kept in Singapore

Part IV of FAA: Conduct of Business
Unsecured Advances, Unsecured Loans, and Credit
Facilities
Regulation 18(1) of FAR

No licensed FA shall grant any unsecured advance, loan or

credit facility:
a) To a director of the licensed FA who is not an employee of
the licensed FA; or
b) to any other officer or an employee of the licensed FA
(including a director who is its employee) or any of its
representatives, which in the aggregate and outstanding at
any one time exceeds S$ 3000
Part V of FAA: Power of Authority
Approval of CEO and Director of Licensed FA
Regulation 56(1) of FAR

Approval by MAS using, FORM 11 required when:

 Appointing the CEO and directors
 Changing the nature of director from non-executive to executive

Foreign Companies
Requirements don’t apply:
 for appointment of director
 change in nature of appointment of director not based in
Singapore, and is not responsible for FA’s business in Singapore
Criteria to be Appointed as CEO or Director

Has a Prohibition Order

Has the licensed FA
under Section 59 of FAA Is he an undischarged
provided all necessary
been made against him bankrupt ?
information to MAS ?
that is still in force ?

Has he gone into any

compromise or scheme Has he been convicted Has he been convicted of
of arrangement with his an offence involving an offence under the
creditors that is still in fraud or dishonesty ? FAA?
operation ?

(Refer to Pages 52-53 for list)

Duties of CEO & Director
Regulation 14 of FAR

A CEO, director or executive director has to discharge of the following

duties of his office

Implemented effective
Identified, addressed and ensured that the business
written policies, and
monitored the risks activities of the FA are
ensured compliance, on
associated with its subject to compliance
all operational areas of
business activities checks
the FA;

set out in writing the discretionary powers of each officer, committee, sub-
committee or other groups of persons of the FA empowered to commit the FA
to any financial undertaking or to expose the FA to a risk of any nature; and
Duties of CEO & Director
Regulation 14 of FAR

A CEO, director or executive director has to discharge of the following

duties of his office

Ensured:
 FA keeps a written record of the stapes taken to monitor compliance with
its policies, thee limits on discretionary powers and its accounting and
operating procedures
 Accuracy, correctness and completeness of any report, return or statement
submitted by the financial adviser to MAS; and
 Effective controls and segregation of duties to mitigate potential conflicts
of interests that may arise from the operations of the FA
Removal of Officer of Licensed FAs
Officer needs to meet the fit & Proper criterion on an ongoing basis.

Regulation 14 of FAR

MAS may direct the company to

remove officer from his office if any
officer does not measure up to the
benchmark and if the MAS thinks it
necessary in the public interest or
for the protection of the investors to
do so.
Power of Authority to Issue Written Directions
Power of Authority to Make Prohibition Orders

Section 59(2) of FAA

Person issued with Prohibition Order is prohibited, permanently or for a

specified period:

From providing any financial advisory service;

Taking part in the management of, acting as a director of

Becoming a substantial shareholder of a licensed FA or

exempt FA
Power of Authority to Issue Written Directions
Effect of Prohibition Orders

Section 60(2) of FAA

Where prohibition order is made against a person and notified to

a licensed FA or exempt FA, they are not to employ the person to
provide any financial advisory services, or use his service

Contravention of Prohibition Order

Fine not exceeding S$50,000
Power of Authority to Issue Written Directions
Variation or Revocation of Prohibition Orders

Section 61(1) of the FAA

The MAS may revoke the a prohibition order:

 On its own initiative
 If the person whom the order was made lodges an application
accompanied with documents and fees prescribed
The MAS shall not vary a prohibition order without giving the
person an opportunity to be heard. Any appeal shall be made
within 30 days from the date the prohibition order has been
made.
Part VII of FAA: Offences
Corporate Offenders and Unincorporated
Associations

Section 83(1) of FAA

Offence committed by a body corporate, and proven to be with the

consent or the connivance of, or attributable to any neglect of an officer
of the body corporate:

The officer as well as the body corporate shall be

guilty of that offence, ad shall be liable to be
proceeded against and punished accordingly
Corporate Offenders and Unincorporated
Associations

Section 83(5) of FAA

Body CEO, director, member of management

Corporate committee, manager, secretary, or similar
‘Officer’ officer, including any person purporting to
act in such capacity

Unincorporated President, secretary, committee members of

Association association, or person holding a position
(Other than analogous to these, including a person
partnership)
purporting to act in such capacity
‘Officer’
Offence by Officers
Section 84(1) of FAA

Failure of any officer of a licensed FA to take reasonable steps to

secure:
 The accuracy and correctness of any statement submitted to MAS,
or such other person may be required under the FAA,
 Compliance with any provision of the FAA

Offence by Officers
Fine not exceeding S$100,000;
Imprisonment not exceeding 2 years or both
(Imprisonment only if offence was committed
willfully)
Falsification of Records by Officers, Etc
Section 85(1) of FAA

Any officer, auditor, employee, or agent of a licensed FA or

exempt FA who willfully:
 Makes false entry; or
 Omit, alters, extracts, conceals; or destroys an entry in any
book, report, slip, document or statement of the business,
affairs, transactions, conditions or assets of FA

Offence by Officers
Fine not exceeding S$100,000;
Imprisonment not exceeding 2 years or both
Forms in Summary
Form # Purpose
1 To apply for an FA licence

3D To inform MAS that provisional representative has

completed all the required exams, within the 3 months
10 To inform MAS that the status of the representative has
ceased with the FA
11 To appoint the CEO and Director; and when a non-
executive director becomes an executive director
18 To inform MAS of a change in the particulars of the
appointed or provisional representative in documents
THE END

FINISH
CMFAS Module 5
Chapter 4:
MAS NOTICES – PART I
[NOTICE NOS: FAA-N16; FAA-N03 & FAA-N11]

5th Edition April

2020
Disclaimer
Please read this disclaimer in full before you use this e-learning module.
Using this e-learning module implies that you accept the terms of this
disclaimer.

You are permitted to use our e-learning module for your own exam preparation
purposes and we do not guarantee the correctness or completeness of material.

Learning Outcomes
After reading this chapter, you should be able to:
 understand the requirements and purposes of the following Notices:
• Notice On Recommendations On Investment Products [Notice No: FAA-
N16]
• Notice On Information To Clients And Product Information Disclosure
[Notice No: FAA-N03]
• Notice On Dual Currency Investments [Notice No: FAA-N11]
MAS Notices Relating To The FAA

FAA – 16
Recommendation on
Investment Products
Notice on Recommendations on
Investment Products (Notice No: FAA-N16)
MAS has introduced stronger measures and enhanced requirements to further
safeguard customers’ interests and ensure intermediaries recommend suitable
investment products to customers especially those who may not have relevant
investment knowledge or experience.

Specified Investment Products

A retail customer must be assessed on
his investment knowledge and
experience before he can be sold any
Specified Investment Product (SIPs)

Listed Unlisted
Specified Specified
Investment Investment
Products Products
Specified Investment Products

• Futures Unlisted • Investment-

Listed Specified
• Exchange- Specified Linked Life
Investment
Traded Funds Investment Policies
Products
Products
Conduct Customer
Conduct Customer
Knowledge Assessment
Account Review (CAR)
(CKA)

Do you have sufficient

knowledge or
experience?
Unlisted Specified Investment Products

Conduct Customer PASS

Knowledge Assessment (CKA) 1. Client is allowed to transact
in such unlisted SIP for a
To consider if client has the: period of 1 year from date of
1. Educational qualifications the CKA
2. Investment experience 2. After a year, the FA shall
3. Work experience
conduct a new CKA before it
Complete learning module provides any
provided by ABS-SAS recommendation on any
(https://sips.abs.org.sg/) unlisted SIP to the client.

PASS
Client wish to proceed to
transact in unlisted SIP

FA has to obtain and consider:

1. Client has personally undergone and
FA still has to provide:
passed the assessment
1. product-specific
2. Previous score of every assessment at
information
the end of every ABS-SAS learning
2. Investor education to the
module taken
client
3. Number of times that the client has bot
been allowed to transact in unlisted SIP
Unlisted Specified Investment Products

Conduct Customer FAIL

Knowledge Assessment (CKA) 1. Client to be informed
2. FA to give advice if client still
To consider if client has the: wants to proceed
1. Educational qualifications
2. Investment experience
3. Work experience

If client still chooses to proceed in an unlisted SIP not

recommended by the FA:
 Draw his attention to the CKA outcome
 Reconfirm client’s decision despite knowing
outcome, in writing
 Highlight to client of his responsibility for his
decision
 FA can’t proceed with transaction before informing
its senior management
Listed Specified Investment Products

Conduct Customer Account PASS Approve customer’s

Review (CAR) account to trade.

To consider if client has the:

relevant knowledge or experience to FAIL
understand the risks and features of
1. Inform customer of
derivatives before approving the
customer’s account to trade such outcome
products 2. If customer wants to
proceed, offer to give
advice
3. Lower trading limit allowed
for added safeguard
Circumstances Where
Notice No: FAA-N16 Does Not Apply

Any recommendation made

with respect to simple life
policies sold as an ancillary
product, to loans with a simple
payment basis for the
insurance cover

Where there is no
recommendation made, or
where only factual information
is provided with respect to any
excluded investment product
Recommendations on Investment Product

Licensed FA has a reasonable basis for

making a recommendation if:
1. Due consideration is given to the
person’s
 Investment objectives
 Financial situation and particular
needs
 Knowledge or experience in SIP, if
applicable
2. Recommendation is based on the
consideration and investigation in (1)
Gather and Document client’s information

Financial Financial Financial

Objectives Status Commitments

Source and
Risk Employment
Amount of
Tolerance Status
Regular Income

Data gathering will not apply to an FA who is also a dealer in respect of

his carrying on of business of providing execution-related advice,
provided that:
Data gathering will not apply to an FA who is also a dealer
in respect of his carrying on of business of providing
execution-related advice, provided that:

Information has already been collected and

documented by FA when business relationship was
first established with the client.

FA updates those information at least annually or as

and when it is informed by the client of any change
in profile.
FA has to inform client, in writing, that:

Information he provides will be the basis on which the

recommendation will be made

Any inaccurate or incomplete information provided by

him may affect the suitability of the recommendation
Needs Analysis

Analyze information Inform client accordingly if

provided by the client -> a suitable product cannot
Identify a suitable product. be identified.

Have in place systems and processes for Reps to determine

suitability of product recommended by taking into account nature
of products, key risks and other features

Have a proper
Explain and document basis documentation if client
of recommendation does not want to receive
recommendation
Documentation & Record Keeping
What are the information to document?

Client’s Information Reasonable Basis Possible Disadvantages

 Investment objectives  State the possible
 For making the
 Financial situation disadvantages client
recommendation.
 Particular needs may face given his/her
circumstances.

A financial adviser shall furnish to its client a

document containing the following when
making a recommendation in respect of an
investment product to the client

 A summary of the information gathered by the

financial adviser
 Any recommendation made to the client by the
adviser and if the client chose to accept
Documentation & Record Keeping
Documents to Furnish to Clients:

A copy of information For CIS, copy of:

gathered and the basis of  Prospectus/Profile statement
the FA’s recommendation  Product Highlights Sheet

For Life Policy, copy of:

 Product Summary
 Benefit Illustration
 Product Highlight Sheet

FA shall document the CKA conducted for its clients & approval
of its senior management for the FA to proceed with client’s
request.

FA to maintain records of all communications with client

relating to SIPs which is listed or quoted in a securities market.
Switching Of Designated
Investment Products
A financial adviser shall not make any recommendation to a client to switch
from one designated investment product to another designated
investment product in a manner that would be detrimental to the client.

The replacement product confers a

lower level of benefit at a higher cost or Client suffers any penalty for
same cost to the client, or the same level terminating the original product
of benefit at a higher cost

Client will incur any transaction

The replacement product is less
cost without gaining any real
suitable for the client
benefit from such a switch;
Switching Of Designated
Investment Products
A financial adviser shall disclose, in writing, to a client any fee or charge that
the client would have to bear if he were to switch from one designated
investment product to another, in order to ensure that the client is able to
make an informed decision on whether to switch.

Guilty of an offence and shall be liable on

conviction to a:
 fine not exceeding $25,000 and,
 in the case of a continuing offence, to a
further fine not exceeding $2,500 for
every day or part thereof during which
the offence continues after conviction.
NOTICE ON INFORMATION TO CLIENTS AND
PRODUCT INFORMATION DISCLOSURE
[NOTICE NO: FAA-N03]
Sets out the standards to be maintained by licensed and exempt financial
advisers and its representatives with respect to the information that they
disclose to clients.

Section 25 of FAA
Obligations to disclose all material
information to client including the form and
manner in which information shall be
disclosed.

Section 26 of FAA
FAs cannot make false and misleading
information to the client regarding
investment product
Section 25 and 26 of FAA:
General Disclosures Principles
Information Disclosed:
 In plain language
LEAR
 Presented in an easy to understand manner
 Explain jargons

Information & Warnings:

 Meet regulatory requirements
DEQUATE  Sufficient for clients to make informed decisions
 Prominently presented & clearly explained

Information:
ot  Not ambiguous, objective and unbiased
False or  On products disclosed
Misleading  Separates fact from opinion
 Given annually and are up-to-date
Section 25 and 26 of FAA:
General info about FA and Representative

FA Representative
• Business name, address & • His name, and FA for he acts
phone number
• Types of financial advisory • Types of financial advisory
services and investment services authorised to provide
products authorised to provide
• Types of activities carried out • Types of investment products he
that are not regulated by MAS, is authorised to provide
if any
• Product providers

The client must be informed, in writing, of any change in these information

Section 25 and 26 of FAA:
Remuneration
FA shall disclose in writing:

Commissions, trailer
commissions, soft Fees, or other benefits
commissions

That is received or will receive that is directly related

to the making of recommendation of an investment
product to the client, or executing a purchase or sale
contract relating to a designated investment product.

For a life policy, the “distribution cost”

item must be disclosed in the benefit
illustration, where available
Section 25 and 26 of FAA:
Conflict of Interest
A financial adviser shall disclose in
writing to clients any actual or potential
conflict of interest arising from any
connection to or association with any
product provider

Section 25 and 26 of FAA:

Designated Investment Product
• Disclose and explain the nature and objective of the
product. E.g risk and benefits, charges and fees.
• Details of provider e.g. relationship between product
provider and financial adviser
• Contractual Rights: For CIS – where the units are held
on behalf of the client under a nominee company’s
name, FA shall explained that to the client that his
rights may be only enforced through the nominee
company.
Section 25 and 26 of FAA:
Illustration of Past & Future Performance of
Designated Investment Products
• Financial Adviser shall not disclose any matter pertaining to future performance
unless is disclosed in registered prospectus
• Highlight to client that forecast and past performance is not necessarily
indicative of the future or likely performance of the product
• When using past performance to illustrate
possible returns of the product, the source of data
used in the illustration should be provided or made
known to client
• For Life Policy, it shall make reference to Benefit
Illustration
• For CIS, shall not make any prediction or forecast
on the future performance.
• When advising on CIS, draw attention of client to all
assumptions, warning statements and other
information
• Inform the client that the last day of the period which
past performance relates is more than three months
prior to the date of the financial adviser’s disclosure
Section 25 and 26 of FAA:
Marketing Materials
• Representative shall only use marketing materials
approved by the financial adviser
• For marketing of investment product using
direct response, it shall include prominent
warning like client may wish to seek advice
from FA before buying otherwise they
must consider suitability

• Client may want to seek advice from an FA

before purchase
• If client chooses not to seek advice from an
FA, he should consider if that particular
product is suitable for him.
NOTICE ON DUAL CURRENCY INVESTMENTS
[NOTICE NO: FAA-N11]

Notice does not apply where advice is given:

 To an accredited investor, expert investor or institutional
investor;
 By a separate and distinct unit of a licensed FA or exempt FA to
a high net worth individual
 Any person outside of Singapore
i. Individual who is not a Singapore citizen/Permanent
Resident
ii. A person with no commercial or physical presence in
Singapore
NOTICE ON DUAL CURRENCY INVESTMENTS
[NOTICE NO: FAA-N11]

Applicable where advice is given to, except:

• accredited investor
• expert investor
• institutional investor
• high net worth individual
• any person outside Singapore who is:
• an individual and:
• not a citizen of Singapore;
• not a permanent resident of Singapore; and
• not wholly or partly dependent on a citizen or permanent
resident of Singapore; or
• in any other case, a person with no commercial or physical
presence in Singapore.
Use Of the terms "Deposit" And "Structured Deposit"
The use of both terms, or their derivatives, cannot be used in the
description or any representation of a dual currency investment

• May be misleading as investors may misconstrue that the product is

principal guaranteed in terms of the base currency.
• No financial adviser or its representative shall use those terms to
describe or represent dual currency investment in any marketing
material or product disclosure document.
Additional Product Information Disclosure
Every financial adviser and its representative shall provide a fair and
adequate description of all material information

Issuer has the right to repay you at a future date in an The currencies
alternative currency which may be different from the from which the
currency in which the initial investment is made. Part or all of client can select at
the interest earned on this investment represents the the time of
premium on this option. investment

An explanation on how the

Subject to foreign exchange
foreign exchange control
fluctuations. Exchange controls may
restrictions imposed by the
be applicable to the currencies the
home country of a foreign
investment is linked to, hence may
currency could impact the
incur a loss on the principal sum.
investment held by the client.
Warnings
• Every financial adviser and its representative shall provide appropriate risk
warnings to all clients in relation to a dual currency investment.
• At the minimum, the warnings shall convey the following message, which shall
be provided in all marketing material and product disclosure documents, and
shall be clearly legible.
The issuer of the product has the right to repay you at the future date in
an alternate currency that is different from the currency in which your
initial investment was made, regardless of whether you wish to be
repaid in this currency at that time

Such investments are subject to foreign exchange fluctuations which

may affect the return of your investment. The principal sum may be lost,
in comparison with the base amount initially invested

You may wish to seek advice from a licensed FA or an exempt FA before

making a commitment to purchase this product. In the event you choose
not to seek advice from a licensed or an exempt FA, you should
carefully consider whether this product is suitable for you
Guidelines On Structured Deposits
Unless otherwise stated, every financial adviser and its representatives
advising on dual currency investments should also observe all relevant
provisions in the MAS Guidelines on Structured Deposits.
THE END

FINISH
CMFAS Module 5: Rules &
Regulations for Financial
Advisory Services
Chapter 5: Notices – Part II

5th Edition April

2020
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Chapter Outline

FAA-N12

FAA-N02 FAA-N13

6 Notices.
FAA-N20
FAA-N14

FAA-N15
Key Learning Objectives

• The 6 Notices
– Notice No: FAA-N02
– Notice No: FAA-N12
– Notice No: FAA-N13
– Notice No: FAA-N14
– Notice No: FAA-N15
– Notice No: FAA-N20
Notice on Appointment and Use of
Introducers by FAs (FAA-N02, pursuant
to Section 58 of the FAA )
Notice applies to all licensed FAs and
Exempt FAs, except:
A. Persons specified in Regulation 4 of
the Financial Advisers (Structured
Deposits – Prescribed Investment
Products and Exemption) Regulations
2005; and
B. Persons specified in Regulation 3 of
the Financial Advisers (Exemptions
from Section 25-29 and 36 of the FAA)
Regulation 2004
Providing factual information to any
client on investment products,
including its name, product provider,
date of launch, minimum subscription
amount, and any fee or charge which
may be imposed

Introducing
Activity

Introducing any client to an Recording particulars of any

introducee for the provision client and forwarding them to
of any type or types of any introducee, with client’s
financial advisory service by consent;
the introducee
Requirements For FAs In Appointing
Introducers

Individuals or corporations appointed should not have this as

their main business or occupation, respectively

Its employees and representatives cannot enter into any

arrangement with introducer to carry out introducing activities

Adequate control systems and procedures are in place to

ensure the proper conduct of the introducer

Introducer cannot provide financial advisory service, and must

disclose this to the client
Requirements For FAs In Appointing Introducers

Written agreement made to spell out clearly the scope of introducing

activities of introducer

FA to give a script to introducer on information relating to the FA, and

their investment products

Introducer required to disclose to client how much he is remunerated,

if applicable

Introducer cannot handle client’s money or property

FA to maintain register of introducers

FA to ensure representative’ or employee’s disclosure under

Regulation 31 of the FAR

FA to provide a script to representative or employee to provide

guidance in his introducing activities

FA to prohibit handling of client’s money or property

Notice on Entry Requirements of a
Provisional Representative (FAA-N12)

Licensing regime for the representatives

under the FAA is replaced by the
Representative Notification Framework
(RNF).

A principal is responsible for notifying MAS

of the appointment of it representative
and to certify that the representative
meets the fit and proper criteria.
Entry Requirements

Provisional representative scheme facilitates the

relocation of experienced individuals who wish to
provide financial advisory service under the FAA on
behalf of a licensed FA or exempt FA.

He may give financial advisory service as a provisional

representative but must pass all the relevant
examinations exams within 3 months.
Minimum entry requirements for a provisional
representatives

At least 21 years old

In the process of relocating or has relocated to

Singapore

At least 3 years of relevant working experience in the

financial advisory services that he will provide

Possess at least a Bachelor’s degree or equivalent, or

professional qualification
Validity Period

The appointment of a Principal shall ensure he

provisional rep shall be passed all relevant exams
valid for a period of 3 before he submits to
months from the date his MAS, the onetime
name is entered into the notification for a
public register as a provisional rep to be an
provisional rep appointed rep.
Validity Period

If Individual IS currently or If Individual WAS

previously licensed, currently or previously
authorised or regulated as licensed, authorised or
a representative in a regulated as a
foreign jurisdiction, representative in a foreign
jurisdiction,

the period between the date of

his ceasing to be so, and the date
it is for a continuous period of at
of his proposed appointment as a
least 12 months;
provisional representative should
not exceed 12 months
Notice on Minimum Entry and Examination
Requirements for Licensed FAs & Exempt FAs (FAA-N13)

Application of CMFAS Exam Requirements

Notice applies to individuals who provide any of the following financial
advisory service in:

Securities

Exchange- Spot foreign Over-The-

Collective traded exchange
Counter
Investment contracts other
derivatives than the purpose of derivatives
Schemes (CIS) contracts leveraged Forex contracts

Structured Investment Spot foreign

deposits defined in products defined in exchange
Life Policies FAA-N13 FAA-N13 contracts for the
(Amendment 2, (Amendment 2, purpose of
2013) 2013) leveraged Forex
Types of Financial Module
Advisory Services

Rules & Product Knowledge & Analysis

Regulations

5 6 7 6A 8 8A 9 9A
Securities,
excluding CIS
Futures contracts

Contracts for
leveraged forex
trading (Prior to 1 Either
Jan 2012) Modules
Types of Financial Module
Advisory Services
Rules & Product Knowledge & Analysis
Regulations
5 6 6A 8 8A 9 9A
Collective
Investment
Schemes (CIS)
Life Policies,
including ILP
MAS Notice 117 (For Health Insurance
Module)
Applies to appointed representatives of FAs who provide:
financial advisory services concerning life policy with
accident and health benefits.

Excludes policies where such benefits are only paid:

1. on injury to, or disability of, the insured from an accident;

2. if the insured becomes totally and permanently disabled;
3. if the insured dies from an accident; or
4. on the occurrence of a combination of events above
Minimum Entry Requirements

Be at least 21 years old

An Appointed
Representative
must: Have a minimum academic qualification:
i. full certificate in GCE ‘A’ level; or
ii. International Baccalaureate Diploma; or
iii. diploma from a polytechnic in Singapore; or
iv. any other academic qualification equivalent to
above

Comply with examination requirements of

FAA-N13 (CMFAS modules)
These appointed representatives of an FA who don’t have the
required academic qualifications need not comply:

1 Feb 2014 Ceased after 1 Feb

2. Were providing such services immediately before

1/2/2014 and ceased after that date prior to his re-
commencement of such activity as a representative

1. Were providing such services immediately before

1/2/2014 and still do, from that date
4. Principal submitted notice of intent to appoint the
individual as an appointed representative before
1/2/2014, and whose name was entered into the
register on or after 1/2/2014

1 Feb 2014

Appointed after
Ceased before or on 1/2/2014
1/2/2014

3. Were providing such services before 1/2/2014, prior

to his re-commencement of such activity as a
representative on or after 1/2/2014
BUT!

If they did not re-commence providing financial

advisory services continuously for more than 1
year from the date of cessation, they have to re-
take and pass the applicable modules under the
CMFAS exam before they can provide any such
services
Retaking of CMFAS Module 5
An individual needs to retake if after
passing their module 5:

Did not commence Subsequently ceased

providing financial providing financial
advisory service with advisory service to a
an FA within 3 years licensed FA without
from the date of recommencing within
passing 3 years from date of
cessation
Continuing Professional Development Requirements for
Appointed Representatives

FAs are required to review and follow up on their

appointed representatives’ continuing education
needs annually to ensure the latter:

Are given
To keep abreast Update their adequate training
of skills and in the new
developments knowledge Specified
Investment
Products
Appointed Representatives Requirements

Undergo structured CPD training relevant to

the financial advisory services he provides;

Obtain and retain supporting evidence of the

completion of the minimum hours in

If unable to fulfill the required training hours

(Total Annual or Pro-rated) due to reasons
beyond his control:
 immediately inform principal; and complete
them within 12 months of being aware of
inability to fulfill the requirements
Principal Requirements

Annual review and follow-up of structured CPD training

needs of representatives

Obtain and retain supporting evidence of the representative’s

completion of the minimum hours in (a)

Wef 1 January 2016:

 Calculate total number of completed structured CPD
training hours of appointed representatives as at the
end of calendar year
 Maintain register of structured training hours of the
appointed representatives for at least 5 years for the
end of the calendar year of the appointed
representatives
Continuing Professional Development
Requirements For Appointed Representatives
A principal must include the structured continuing professional development
("CPD") training undertaken by its reps to remain fit and proper in respect of
their provision of financial advisory services.
Every appointed Rep and Principals to observe with regard to CPD training:

Every appointed rep Every principal

to observe: must:
- undergo structured - review and follow up on
CPD training* which is each of its appointed
relevant to the type of reps’ structured CPD
financial advisory training needs on an
services that he provides; annual basis;

- Obtain & retain relevant - Obtain & retain relevant

supporting evidence of supporting
completed minimum hrs evidence that each of its
of structured CPD reps has completed
training. minimum hrs of
structured CPD training.
Minimum hours of structured CPD
training required and calculation of
the structured CPD training hours

If appointed representatives provides:

Only one type of financial advisory services

CORE CPD HOURS (min)

8
4 Training
Training
Hours in
Hours in
Rules &
Ethics
Regulations
If appointed representatives provides:
Only one type of financial advisory services

4
Training 18
Hours Training
For advice in mortgage Hours
reducing term assurance For advice in investment
and/or group term products; collective investment
insurance) schemes; and life insurance
If appointed representatives provides:
Two or more types of financial advisory services
CORE CPD HOURS (min) SUPPLEMENTARY CPD
HOURS (min)

8
4 Training OR
Training
Hours in 4 18
Hours in Training
Rules & Training
Ethics Hours
Regulations Hours

Minimum hours of structured CPD training

must be completed by the end of every Higher of the minimum (ie 4 or
calendar year; 18) training hours, for those types
Only training hours of courses in Ethics and of financial advisory services
Regulations accredited by IBF or SCI count.
For individuals appointed for an aggregate period of less than a year in a calendar year,
the minimum training hours for the Core CPD and Supplementary CPD hours will be
pro-rated, eg:

For Ethics, pro-rated minimum training hours

Total # of days appointed in the calendar yr

X 4 hours
365

For Rules & Regulations, pro-rated minimum training hours

Total # of days appointed in the calendar yr

X 8 hours
365

For Supp Training, pro-rated minimum training hours

Total # of days appointed in the calendar yr

X Supp CPD hrs
365
Situation Situation Situation
a) Unfulfilled Total b) He changes to a c) . He ceases to be
Pro-rated training new principal in the a representative
hours new calendar year

Action Action Action

a) Can be carried b) Condition in (a) c) He’s not required
over and must be need not be to complete his
completed by the complied with Total Annual CPD
next calendar year . or Pro-rated CPD
hours
For Supplementary CPD Hours or Pro-rated
Supplementary CPD Hours, 2 completed hours from the
structured CPD training on:
a) Medishield Life Scheme content;

b) Shield Plan content; or

c) a combination or (a) and (b),

may be considered as Equivalent CPD hours, for the same

calendar year.
Section 58(8) of the FAA

Contravention of requirements under Notice

No: FAA-N13 is an offence:
Fine not exceeding S$25,000, and
For a continuing offence a fine not
exceeding S$2,500
NOTICE ON REPORTING OF MISCONDUCT OF
REPRESENTATIVES BY FINANCIAL ADVISERS
[NOTICE NO: FAA-N14]

A financial adviser is responsible for the conduct

of its representatives:

• take appropriate disciplinary action against its

representatives for any misconduct committed
by them

• ensure consistency in its application of

disciplinary action
NOTICE ON REPORTING OF MISCONDUCT OF
REPRESENTATIVES BY FINANCIAL ADVISERS [NOTICE
NO: FAA-N14]
For Acts involving fraud, Financial adviser is
dishonesty or offence of expected to lodge a police
similar nature, eg forgery, report and submit to the
cheating, misappropriation MAS a copy of the police
of fund, criminal breach of report, together with
trust information (where
available)

Where a financial adviser has not

lodged a police report, it should
notify the MAS of the reasons for
its decision.
Reports of Misconduct of Representative

Acts Involving Failure to satisfy the Other Misconduct

Inappropriate Advice, Guidelines On Fit like non-compliance
Misrepresentation or And Proper Criteria with regulatory
Inadequate (Guideline No: FSG- requirement (FAA) or
Disclosure of G01 serious breach of
Information, making internal policy that
false or misleading will render demotion,
statement suspension or
termination

FA shall report to MAS that is

committed by its representative before
the misconduct was discovered or
disciplinary action has been decided
upon or taken
Reports of Misconduct of Representative
Misconduct of Update on Report Annual declaration
Financial adviser of Misconduct of
Representative

• Financial adviser • Where a financial • If there is no

required to report to adviser has not Misconduct Report for
the MAS the concluded its any calendar year, the
relevant information investigation or has financial adviser shall
["Misconduct not taken any submit to the MAS a
Report"] not later disciplinary action declaration in the form
than 14 days after against the not later than 14 days
the discovery of the representative after 31 December of
misconduct by the concerned, the that calendar year.
financial adviser financial adviser shall
submit to the MAS
["Update Report"], to
provide an update of
the case as and when
there is any significant
development.
Reports of Misconduct of Representative

 A financial adviser shall ensure that its appointed representatives

meet continuing education requirements as part of the fit and
proper requirements.
 However, the financial adviser is not required to lodge a Misconduct
Report against its representatives for failing to meet the continuing
education requirements.
Investigations
• A financial adviser is expected to conduct
internal investigations and keep proper
records of the following:
a summary of the facts of 01
the case
• Where an 02
investigation has been interviews with relevant parties,
carried out by a such as the representative, his 02
financial adviser in supervisor and the client
respect of any
misconduct
committed by any of 03
its representatives, documentary evidence of
the financial adviser the alleged misconduct;
shall, at the request of
the MAS, furnish the
records as set out the investigator's 04
above to the MAS. assessment and
recommendation; and
.
disciplinary action 05
taken against the
representative, if any.
Disciplinary Action
• A financial adviser is responsible for the conduct of
its representatives.
• It should take appropriate disciplinary action against
its representatives and ensure consistency in its
application of disciplinary action.
− suspension from providing any financial
advisory service;
− restitution of misappropriated moneys;
− fine;
− formal warning;
− demotion; and
− termination of the representative's employment
or arrangement (agreement) with the financial
adviser.
• A financial adviser should have an internal process
for addressing the appeals made by its
representatives for any disciplinary action taken
against them.
Use Of Information In Report

The MAS may take into account any information contained in

any report that is submitted by a financial adviser under Notice
No: FAA-N14 in exercising its powers or performing its
functions under the FAA.
Notice on Cancellation Period for Unlisted
Debentures (FAA-N15)

Notice does not apply to:

 Unlisted debentures with tenures of 3 months or shorter

 Unlisted debentures which are exempted from prospectus
requirements under the SFA
 Purchases of unlisted debentures where the client is not an
individual
Sales of Unlisted Debenture

A relevant person shall not sell, directly or indirectly, any

unlisted debenture which does not contain a right, given by the
issuer, to cancel the agreement to purchase such debenture

A relevant person must conduct due diligence on issuers of

such unlisted debenture to ensure they have put in place steps
and processes that satisfy the Guidelines on Cancellation
period for Unlisted Debentures
Disclosure of Cancellation Period

When selling a unlisted debenture, the relevant person shall disclose

and explain to the client:

Terms and procedures for

Time frame for the client to
exercising his rights to
reconsider his purchase
cancel his purchase

During the cancellation

Risk of any fall in value period charges would have
to be borne by the client
Notice on Requirements For the Remuneration
Framework for Representatives and Supervisors
(“Balanced Scorecard Framework”) and
Independent Sales Audit Unit (Notice No:FAA-
N20)

Notice sets out the requirements in relation to the design and

operation of the balanced scorecard framework, and the
independent sales audit (ISA) unit, to be put in place by FAs and
Exempt FAs in their remuneration structures.
The ISA unit

Not supervising or managing the conduct and performance of

any representative, directly or indirectly

Competent in reviewing and assessing the quality of the financial

advisory services provided by the representatives, against non-
sales KPIs, and determining any infractions

Independent of the financial advisory services unit of the FA

The ISA unit

In forming the ISA unit to carry out the responsibilities, an FA may:

 Utilise its compliance and risk management function; or

 Outsource to a third party provider.

Both the above must meet the conditions set out regarding
the persons comprising the Unit, and the other requirements
under the Notice.
Requirements of the ISA Unit in relation to the
balanced scorecard framework

To carry out post-transaction checks and sample transactions,

accordingly

To submit reports on its audit of the quality of the financial advisory

services provided in calendar quarter by the representative, to either:
 The Board and CEO of the FA; or
 The business unit of the FA which is independent from the
financial advisory services unit of the FA

Deadline: By the end of 2 calendar quarters immediately subsequent to the

measurement quarter.
Requirements of the ISA Unit in relation to the
balanced scorecard framework

FA has to satisfy the following by the end of every calendar quarter

immediately subsequent to the measurement quarter:

Review and assess

findings of mystery Ensure that the ISA
Ensure that the ISA shopping exercises, Unit classifies any
Unit performs its and any infraction
substantiated committed by the
responsibilities; representatives,
complaints against
the performance of accordingly;
the representatives’;
Non-Sales KPI

 FA must incorporate non-sales KPIs into the

balanced scorecard framework

 It may include other KPIs in the balanced

scorecard framework, but shall not measure the
specified variable income of a representative
against these other KPIs
Non-Sales KPI
Non-sales KPI 1
• Understanding a Client’s Needs

Non-sales KPI 2
• Suitability of Product Recommendations

Non-sales KPI 3
• Adequacy of Information Disclosure

Non-sales KPI 4
• Standards of Professionalism and Ethical Conduct in the
provision of financial advisory services
Specified Variable Income

Remuneration is by variable income only

Measure only 60% of representative’s

variable income in the calendar quarter
against the non-sales KPIs

Remuneration is by a fixed salary and a variable income component

Measure ALL of the variable income of the representative in the

calendar quarter against the non-sales KPIs
Processes and methods for reviewing
and assessing representative’s
performance against non-sales KPIs

 Post-sales transaction checks by the ISA Unit

a) On sampled transactions that are rollovers of a dual
currency investment or a structured note relating to
equities or commodities, all call-logs of conversations
between client of every sampled transaction must be
reviewed
b) On other sampled transactions:
 Documentation review, including fact find, needs
analysis and basis of recommendation; and
 Client survey
Processes and methods for reviewing and
assessing representative’s performance
against non-sales KPIs

 Sampling methodology of the ISA Unit and sampled

transactions
a) Has to carry out up to 3 rounds of post-transaction checks for
each representative for every calendar quarter

b) Has to determine the population for sampling using either:

 Historical average transaction count method, based on
average transactions over the past 12 months; or
 Actual transaction count method, based on actual number of
transactions in the measurement quarter
Processes and methods for reviewing and
assessing representative’s performance
against non-sales KPIs
In any measurement quarter, the ISA Unit has to conduct a minimum
% of the population samplings as follows:

1st round 2nd round (If one or 3rd round (If one or
more infractions more infractions
discovered in 1st discovered in 2nd
round) round)
Selected 10% Additional 5% Additional 25%
Representative
Representative 2% Additional 10% Additional 10%
provides financial
advisory services
for rollovers of
investments
Other 5% Additional 10% Additional 20%
representatives
Processes and methods for reviewing and
assessing representative’s performance
against non-sales KPIs

 Findings from mystery shopping exercises

Such findings by the FA, and information received from
findings of mystery shopping exercises conducted by MAS
must be reviewed and assessed to determine whether:
a) the findings are substantiated; and
b) the representatives have committed any infraction
in the calendar quarter
Any infraction committed will be factored into his
performance under the balanced scorecard framework in
the calendar quarter in which the review and assessment
was completed.
Processes and methods for reviewing and
assessing representative’s performance
against non-sales KPIs

 Substantiated Complaints

 FA will review and assess any substantiated complaint about

the quality of the financial advisory services provided by the
representative against the non-sales KPIs

 If the representative has committed an infraction in the

calendar quarter, this will be factored into the balanced
scorecard framework which may affect the variable income
that he is entitled to for that calendar quarter
Processes and methods for reviewing and
assessing representative’s performance
against non-sales KPIs

 Classification of Infractions

In relation to the quality of the financial advisory services

provided by the representative, the ISA Unit has to
determine the category in which the infraction falls under:

Category 1

The infraction :
 has a material impact on the interests of the client; or
 impinges on the fitness and propriety of the representative
Processes and methods for reviewing and assessing
representative’s performance against non-sales KPIs

Category 2

Where infractions don’t fall under Category 1

Disregarded as Infractions

Where minor lapses or administrative oversights uncovered from

the sampling transactions, mystery shopping exercises, or
substantiated complaint don’t affect client’s interest or impinge on
propriety of representative
Grading Table for Representatives
Balanced Percentage (‘X’) or number of cases Percentage of specified
Scorecard of with infractions variable income
representative entitled

A X < 5% 100%

5% ≤ X < 10% or 75% to less than 100%

B
2 cases with Category 2 infractions

10% ≤ X < 20% or 50% to less than 75%

C
3 cases with Category 2 infractions

20% ≤ X < 30% or 25% to less than 50%

D
4 cases with Category 2 infractions

a) X ≥ 30% or ≥ 5 cases in Category 2; 0 to less than 25%

E or
b) ≥ 1 cases with Category 1 infractions
Recovery of specified variable income which representative is not
entitled to in the calendar quarter

If an FA has already paid the representative any variable income in relation

to the portfolio of transactions in a calendar quarter, only a percentage, or
the effective percentage of the specified variable income may be
recovered.

Deadline for Recovery

No later than the end of 2 calendar quarters subsequent to the last
measurement quarter
Requirements of the balanced scorecard framework
for supervisors of an FA

Specified
Variable
Income

Remunerated by variable income

only, like his representatives

If not remunerated by
Only 60% of the
any variable income,
variable income FA to assess
provided / to be supervisor’s
provided to the performance and
supervisor in the factor that into any of
calendar quarter his appraisal, including
remuneration and
will be measured;
promotion
or
Requirements of the balanced scorecard framework for
supervisors of an FA

Specified
Variable
Income

Remunerated by a fixed salary and

a variable component, like his
representatives

If not remunerated by any

If by variable income, variable income, FA to
FA will measure all assess supervisor’s
the variable income performance and factor
provided / to be that into any of his
provided to the appraisal, including
supervisor in the remuneration and
calendar promotion
Requirements of the balanced scorecard framework for
supervisors of an FA

If remunerated
by a fixed salary
and a variable
income
component, and
his
representatives:

are not remunerated

are remunerated by
by any variable
variable income
income

all variable income the supervisor’s

provided to the performance is
supervisor in that assessed against the
quarter against the representative’s
representatives’ balanced scorecard
performance under performance, factoring
the balanced in any other appraisal
scorecard framework, of supervisor
will be measured
Grading Table for Supervisors

% of entitled total specified variable Balanced Scorecard

income from all representatives under grade for supervisor for
supervision in a calendar quarter a calendar quarter

75% - 100% Good

50% to less than 75% Satisfactory

25% to less than 50% Fair

0% to less than 25% Unsatisfactory

Provision of Balanced Scorecard Performance Record to
Representatives and Supervisors

An FA has to provide the record of the representative’s and

supervisor’s performance under the balanced scorecard framework
in every calendar quarter by the end of 2 calendar quarters
immediately subsequent to the measurement quarter

Record must minimally include:

• gross variable income
• gross specified variable income
• % entitlement to specified variable income
• amount of specified variable income entitled to receive
Responsibilities of Board and Senior
Management

Accountable for implementation of the BSC

framework to incentivise fair dealing conduct

Establish a management information

framework to monitor the operations of the BSC
framework and measure the achievement of
the fair dealing outcomes

Measures to be put in place, for training and

coaching to ensure:
 representatives meet non-sales KPIs; and
 supervisors perform their supervisory or
management roles in a proper manner
Penalties at a Glance

Offence Fine (S$) Jail Term

Acting as a representative when  25,000  12 months
requirements are not met

Principal allows representative to  50,000

act as representative when
requirements are not met
Lodging false or misleading  50,000
statements on representative to
MAS
Giving false and misleading  50,000  12 months
statements (Section 26)
Penalties at a Glance
Offence Fine (S$) Jail Term
Not disclosing potential or actual  25000  12 months
conflict of interest

Representative acting for more  25 000  12 months

than one principal without MAS’
approval
Engaging a person not allowed  50 000
to give advice while issued with
a Prohibition Order
Providing advice without having  25000
completed the relevant CMFAS
exams, including for SIPs
Contravening the requirements  25000
when advising clients to switch
investment products
Penalties at a Glance
Offence Fine (S$) Jail Term
Failure to comply requirements  25000
specified in a written direction,
including FAA-N16
Failure of officer of FA to:  100 000  2 years
 take reasonable steps to
comply under FAA;
 give accurate and correct
statements
to MAS
Anyone in the FA (officer,  100 000  2 years
employee, auditor,
representative….) who omits,
alters or destroys entry in any
book, etc
THE END

FINISH
CMFAS Module 5: Rules &
Regulations for Financial
Advisory Services
Chapter 6: Prevention of Money Laundering
& Countering the Financing of Terrorism

5th Edition April

The information is provided on the basis that all

You are highly advised to read the Study Guide

provided by the Singapore College of
Insurance for your exam preparation and do not
solely depend on this e-learning module as this
is only a supplement to aid in your exam
preparation.

You are not allowed to print and download

Internal Customer
Policies, Due
Compliance, Diligence
Audit and Chapter
Training 6

Reliance on
Third Parties

Suspicious
Transactions
Reporting
Record Keeping
&Personal Data
Key Learning Objectives
 Understand the principles on Money Laundering and
Countering the Financing of Terrorism
 What is Simplified Due Diligence and Enhanced Due
Diligence
 Suspicious transaction
 Importance of internal policies, compliance
Definitions

Notice No: FAA-N06

• AML/CFT • FATF
• Beneficial owner • Financial Adviser
• Business relations • Government Entity
• Company • STR
• CDD measures • STRO
• Customer
Underlying Principles

Notice No: FAA-N06

Exercise due diligence when dealing with customers, those

appointed to act on behalf of customers, connected parties
and beneficial owners

Conduct business with high ethical standards, and guard

against doing business with, or undertaking transactions
that may be connected to ML or terrorism financing

Assist and co-operate with the relevant law enforcement

authorities in Singapore to prevent ML and terrorism
financing
Assessing Risks & Applying a Risk-
Based Approach

1. Risk Assessment
 FA must take appropriate steps to identify, assess and
understand its ML and terrorism financing risks in relation to:
 its customers
 the countries or jurisdictions where its customers are in /
from (nationality, place of domicile, business or work, country
of business incorporation)
 the countries or jurisdictions where FA is operating in
 its products, services, transactions and delivery channels
Assessing Risks & Applying a Risk-Based
Approach

Appropriate Steps Include:

 documenting the FA’s risk assessment;

 considering all relevant risk factors before
determining the level overall risk, appropriate
type and extent of mitigation to apply;
 keeping the FA’s risk assessments up-to-date;
 having appropriate mechanism to provide risk
assessment information to the Authority
Assessing Risks & Applying a Risk-Based
Approach

Develop and implement Monitor implementation

policies, procedures and of the policies, procedures
controls to manage and and controls.
mitigate risks identified, Enhance them, if necessary
effectively

Risk Mitigation
Ensure the performance of
Perform enhanced the measures or enhanced
measures where higher risks measures for effective
are identified, for effective management and mitigation
management and mitigation of the identified risks
New Products, Practices and
Technologies

FA to identify and undertake risk assessments (ML and

terrorism financing), prior to launch or use of :

New New New delivery New technologies

products business mechanisms for new and
practices existing products

Appropriate measures must be taken to manage and mitigate

risks
Customer Due Diligence (CDD)

Notice No: FA-N06

• Anonymous or Fictitious Accounts

-Should not be opened or maintained by FAs
• Where There Are Reasonable Grounds for Suspicion Prior to the
Establishment of Business Relations or Undertaking of any Transaction

FA shall:
-Not establish business relations with, or undertake a transaction for, the
customer; and
-File an STR, and extend a copy to the Authority
When CDD is to be performed

CDD Measures are to be performed when:

1 FA establishes business with any customer;

2
There is suspicion of money laundering or
terrorism financing;

3
FA has doubts about veracity or adequacy
of information previously obtained
When CDD is to be performed
Identification

Individual/Natural Person

 Full name, and any aliases

 Unique i/d identification
 Residential address, or registered business
address
 DOB or date of incorporation/registration
 Nationality or place of incorporation
When CDD is to be performed
Verification

Individual/Natural Person

• Verify the identity of individual/customer using

reliable, independent source date, documents
or information
When CDD is to be performed
Identification
Legal Person
(eg companies, joint ventures, or partnerships)

Identify each connected parties of the customer by

collecting the below information of each connected party:

 Full name of individual , including any aliases

 Unique identification number

Identify the legal form, constitutions and powers that

regulate and bind the legal person
When CDD is to be performed
Identification

Legal arrangement (eg. trusts)

For each connected party, identify:
 Full name of individual , including any
aliases
 Unique identification number
Identify the settlors, trustees, the protector (if,
any), & beneficiary with sufficient information
so as to be able to identify him for distribution
of assets later
When CDD is to be performed

Verification

Legal Person/Legal Arrangement

• Verify the legal form, proof of existence,

constitution and powers that regulate
and bind the customer, using reliable,
independent source data, documents
or information.
When CDD is to be performed

Identification

Individual (Natural Person) appointed to act on

behalf of beneficial owner

 If more than one appointed individual, FA will have to

identify each appointed individual.

 Appropriate documentary proof authorising the

appointment of such natural person; and

 Specimen signature of such natural person appointed

When CDD is to be performed
Verification
Individual (Natural Person) appointed to
act on behalf of beneficial owner

• verify the identity of each natural person using reliable,

independent source data, documents or information.
• verify the due authority of each natural person appointed to
act on behalf of the customer by obtaining at least the
following:
a) The appropriate documentary evidence authorising the
appointment of such natural person by the customer to act
on his or its behalf;
b) The specimen signature of such natural person appointed
When CDD is to be performed
Identification & Verification
Beneficial owner

 Identify and verify their identities, using reliable sources

 Where a customer is not a natural person, FA shall understand the nature

of customer’s business and its ownership and control structure.

 Verification of beneficial owner is not necessary when the customer is

 the Singapore government or a foreign government entity;

 an entity listed on SGX, and other stock exchanges outside Singapore

that are regulated;

 a financial institution set out in Appendix 6A, unless there’re reasons to

(see Guidelines 6-8-9 to 6-8-11)
When CDD is to be performed
Identification & Verification
Beneficiary

 Where FA distributes life insurance policies on behalf of a

direct life insurer, and the identified beneficiary is :
 a natural person/legal person/legal arrangement
• Obtain the full name, and any aliases, must be
established.
 designated by class, characteristics or other means,
• Obtain sufficient information concerning the beneficiary to
satisfy the direct life insurer that such direct life insurer will
be able to establish the identity of the beneficiary at the
time of payout.
When CDD is to be performed
Ongoing Monitoring

Put in place, and implement systems and processes to:

 Observe conduct of account and scrutinize customer’s

transactions
 Ensure transactions are consistent with FA’s knowledge of
the customer, its business and risk profile
 Pay attention to complex or unusually large or patterns of
transactions, that have no apparent of visible economic or
lawful purpose
When CDD is to be performed
Ongoing Monitoring
• Ensure CDD data, documents and information of all the
customers are kept up-to-date
• If FA considers it appropriate to retain customer despite
reasonable grounds for suspicion, FA must:
 substantiate and document reasons; and
 that the customer’s business relationship with the FA will
be subject to commensurate (equal) risk mitigation
measures, including enhanced ongoing monitoring
Timing for Verification
Complete before FA establishes business relations with
the customer.

FA may establish business relations with customer before

completing the verification of identity if:

Deferral of AND Risks of

completion of money
verification is laundering
essential so as and terrorist
not to disrupt financing can
normal conduct be effectively
of business managed by
operations the FA
Timing for Verification

If FA establishes business relations with customer before

completing the verification of identity, FA shall:

#1
Develop and implement internal risk management
policies and procedures

#2
Complete such verification as soon as is
reasonably practicable.
CDD Measures

If Financial adviser is unable to complete CDD

measures, it shall terminate the business
relationship and consider if the circumstances are
suspicious, so as to warrant the filing of a STR

Financial adviser shall perform CDD measures on all

the joint account holders

Financial adviser shall perform such CDD measures

as may be appropriate having regard to its own
assessment of materiality and risk
Screening

It’s a preventive measure to be carried out:

 When FA established business relations with customer;

 On a periodic basis, after establishing business relations;
 When there are changes or updates to:
 Lists and information provided by MAS or other relevant
authorities in Singapore to the financial adviser; and
 natural person appointed to act on behalf of customer,
connected parties or beneficial owners of customer
Simplified Customer Due Diligence
FA may perform simplified CDD measures if:

it can effectively
identify and verify it is satisfied that
A customer that
the customer, the risks of
is a financial
beneficial owner of money
institution is
the customer, and laundering and
any natural person stated in
terrorist
appointed to act on Appendix 6B
financing are low
customer’s behalf;
Simplified Customer Due Diligence

FA cannot perform simplified CDD measures if:

where a customer where a customer where FA

or beneficial or beneficial suspects ML or
owner of a owner of a TF is involved
customer is from customer is from
a country or a country or
jurisdiction which jurisdiction
FATF has called known to have
for inadequate
countermeasures AML/CFT
measures
Enhanced Customer Due Diligence
When ML/TF risks are identified to be higher, enhanced
CDD measures shall be taken to mitigate the risks
a natural person entrusted with prominent
public functions domestically, in a foreign
country, or in an international organisation;

Politically
Exposed Family members of such a person;
Person

Close associate of such a person

Enhanced Customer Due Diligence
Prominent Public Roles include:
Senior
senior Judicial
A Head Of members of political
A Head or Military
Government the party
Of State Officials
legislature officials

Government senior senior

ministers, MPs management executives of
Nominated MPs, of international state-owned
Non Constituency organisations corporations
MPs, senior civil (Eg NATO, IMF,
servants WTO, APEC
Secretariat)
Enhanced Customer Due Diligence

To determine if a customer, beneficial owner of a

customer, etc, is a PEP, or a family member or close
associate of a PEP, FAs shall implement:

Policies Procedures Controls

Appropriate internal risk management

systems
Enhanced Customer Due Diligence
An FA has to carry out the following enhanced CDD measures
for a customer or beneficial owner of a customer who is a PEP:

conduct
establish the
get approval enhanced
source of
from its senior monitoring of
wealth and
management to business
source of funds
establish or relations with
of the customer
continue the customer,
and any
business including
beneficial owner
relations with increasing the
of the customer;
the customer; degree and
and
nature of the
monitoring
Other Higher-Risk Categories

• A customer or beneficial owner of a customer is

from a country or jurisdiction:
• a) which FATF has called for countermeasures;
• b) known to have inadequate AML/CFT
measures

Appropriate risk management systems, policies, procedures and

processes must be implemented to determine if they may
present a higher risk of ML and TF
Performance of CDD Measures by
Intermediaries Pg 134

The financial adviser is satisfied that the intermediary

has adequate measures to comply with AML/CFT
requirements, consistent with standards set by FATF
The intermediary has not been precluded by the
Authority
Any information needed can be relayed to the financial
adviser without delay

No financial adviser shall rely on an intermediary to conduct

ongoing monitoring of customers

For the avoidance of doubt, despite the reliance upon an

intermediary, the financial adviser shall remain responsible for its
AML/CFT obligation
Reliance on Third Parties

“Third Party”
A financial institution that typically has an existing relationship
with the customer that is independent of the relationship to be
formed by the customer with the relying FA.

• Requirements if FA were to rely on third party:

 The third party is subject to and supervised for compliance
with AML/CFT requirements consistent with standards set by
FATF, and has adequate AML/CFT measures in place for
compliance;
Reliance on Third Parties

Requirements if FA were to rely on third party:

it takes appropriate the third party is the third party is

steps to identify, not a precluded able and willing to
assess and (prohibited) FA by provide, without
understand the ML the Authority from delay, upon the
/ TF risks particular relying upon; and FA’s request, any
to the countries or data, documents or
jurisdictions the information
third party obtained by the
operates in; third party
regarding the
measures applied
on the FA’s
customer, which is
required or would
FAs cannot rely on third parties for ongoing
want to obtain.
monitoring of business relations with
customers.
Reliance on Third Parties
Requirements if FA were to rely on third party:

It takes appropriate steps to

identify, assess and The third party is not a
understand the ML / TF precluded (prohibited) FA
risks particular to the by the Authority from relying
countries or jurisdictions the upon; and
third party operates in;

The third party is able and willing to provide, without delay, upon the FA’s
request, any data, documents or information obtained by the third party
regarding the measures applied on the FA’s customer, which is required or
would want to obtain.
FAs cannot rely on third parties for ongoing monitoring of business
relations with customers.
Record Keeping
Minimum record retention period of 5 years:

CDD information relating to business relations, account files,

business correspondence and results of any analysis
undertaken, following termination of business relations;

Data, documents and information relating to a transaction,

including any information needed to explain and reconstruct
the transaction, following completion of transaction.

Retain records of data, documents and information on all its

business relations with or transactions for a customer that
has been a subject of STR.
Record Keeping

Records maybe retained as:

In paper
or
Original copies Microfilm
electronic
form

As long as they are admissible as evidence in a Singapore

court of law
Personal Data

FA is NOT required to provide an individual customer, an

individual beneficiary of a life insurance policy, an individual
appointed to act on behalf of a customer, etc with:
a) Any access to personal data of an individual that is in
the possession or under the control of the FA;
b) Any information about the ways in which the personal
data of an individual in (a) has been or may have been
used or disclosed by the FA; and
c) Any right to correct an error or omission of personal
data about the individual that is in the possession or
under the control of the FA
Suspicious Transactions Reporting

An FA has to:
 establish a reference point within organisation for staff to
promptly refer transactions suspected to be connected to
money laundering and terrorist financing
 keep proper records of all transactions, including findings and
analysis, sent to STRO

A copy of all reports on suspicious transactions (including

attempted transactions) must be submitted to MAS, within 15
business days of case being referred.
Suspicious Transactions Reporting

FA must consider if in certain

circumstances the filing of an
STR is warranted, eg:

customer is unwilling, reluctant or

it is unable, for any unable to provide the information
reason, to complete requested for, withdraws a pending
the measures application, or terminate existing
business relations

If FA forms a suspicion of ML or TF, and performing the

measures will tip-off the customer, the beneficial owner of the
customer, etc it may stop performing the measures. The
financial adviser shall document the basis for its assessment.
An STR must be filed.
Internal Policies, Compliance,
Audit & Training

FA is required to develop and implement:

• internal policies
• procedures
• control
with consideration to its ML and TF risks, and the size of
its business, to prevent ML and TF.
These must be communicated to all its employees.
Internal Policies, Compliance,
Audit & Training
Group Policy
• An FA must develop a policy to meet the requirements to all
its branches and subsidiaries in its financial group.

If it has a branch or subsidiary in a host country or jurisdiction that:

 FATF has called for counter-measures; or
 is known to have inadequate AML/CFT measures,
FA has to ensure the group policy is strictly observed by the
management of the branch or subsidiary.
Internal Policies, Compliance,
Audit & Training

If AML/CFT requirements in Singapore and host country differ, the FA

will apply the higher of the two standards, to the extent that the host
country permits.
If there’s a conflict in the laws and the higher standard cannot be
fully observed, the FA has to:
 apply additional appropriate measures to manage ML and TF,
and
 report to the Authority and comply with further directions
Internal Policies, Compliance,
Audit & Training
Training

FA has to ensure all employees, representatives, and officers

are regularly and appropriately trained on:
a) AML/CFT laws and regulations, CDD measures, detecting
and reporting suspicious transactions;
b) prevailing techniques, methods and trends in ML and TF;
and
c) FA’s internal policies, procedures and controls on AML/CFT
and their roles and responsibilities in combating ML and TF
Guidelines to MAS Notice No: FAA-NO6 on Prevention of
Money Laundering and CFT

Primary legislation to combat money laundering -

CDSA
The degree of observance of the guidelines
impacts on the Authority’s overall risk
assessment of the FA, including the quality of its
board and senior management’s:
 oversight
 governance
 internal controls
 risk management
Guidelines to MAS Notice No: FAA-NO6 on
Prevention of Money Laundering and CFT

3 Stages of Money Laundering

03
02 Integration
01 Layering
Placement

Money Laundering

Money laundering a process intended to mask

the benefits derived from criminal conduct so
that they appear to have originated from a
legitimate source
Terrorism Financing (TF)

Primary legislation to combat TF is the TSOFA

[Terrorism (Suppression of Financing) Act, Cap (325)]

Acts of terrorism aim to :

• Influence or compel governments into a particular course of

action; or
• Intimidate the public or a section of the public
Terrorism Financing (TF)
Terrorists require funds to carry out acts of terrorism,
and terrorism financing is the act of providing these
funds

Funds for terrorist acts may be derived from:

 robbery
 drug-trafficking
 kidnapping
 extortion
 fraud or online hacking of accounts
 legitimate sources, eg donations from charities, legitimate
business operations
The 3 Lines of Defence
Board of Directors and Senior Management responsible
and accountable

1st Line 2nd Line 3rd Line

Business Units, AML/CFT Internal audit
eg front office compliance functions to
and customer- functions: independently
facing functions evaluate
• sample testing, AML/CFT risk
review management
• exception reports framework and
• alert senior controls
management if
staff & officers are
periodically
not addressing
AML/CFT risks
and concerns
Governance
FA has to ensure successful implementation and effective
operation of a risk based approach to AML/CFT through its officers,
employees and representatives.

The board and senior management must:

• Receive sufficient, frequent and objective information to

accurately see the ML/TF risks that it is exposed to through its
activities and business relations

• Receive sufficient and objective information to assess the

effectiveness and adequacy of its AML/CFT controls
• Ensure processes are in place to escalate important decisions for
the FA to address and control ML/TF risks
Examples of Suspicious Transactions

 Transactions which do not make economic

sense
 Transactions involving large amounts of cash
(cash amount exceeding $20,000)
 Transactions involving accounts of the
customer with the FA
 Transactions involving transfers abroad
 Transactions involving unidentified parties
 Tax Crimes related transactions
THE END

FINISH
CMFAS Module 5
Chapter 7:
MAS NOTICES – PART III

5th Edition April

The information is provided on the basis that all

You are highly advised to read the Study Guide

provided by the Singapore College of
Insurance for your exam preparation and do not
solely depend on this e-learning module as this
is only a supplement to aid in your exam
preparation.

You are not allowed to print and download

[NOTICE NO: FAA-N17] [NOTICE NO: FAA-N18]

MAS NOTICES
– PART III
[4 Notices]

[NOTICE NO: FAA-N19] [NOTICE NO: FAA-N21]

Chapter Outline

FAA-N17, N18 and N19 are issued pursuant to section 58 of

the Financial Advisers Act (Cap. 110) (the “Act”).

FAA-N21 is issued pursuant to section 58(1) of the Act.

Under section 58(5) of the Act, contravention of FAA-N17, N18 and

N19 shall be guilty of an offence and shall be liable on conviction
to:
• Fine not exceeding $25,000 and,
• In the case of a continuing offence, to a further fine not
exceeding $2,500 for every day or part thereof during which
the offence continues after conviction.
Learning Objectives

Understand the requirements of the following Notices and

who they apply to:

 Notice On Reporting Suspicious Activities & Incidents Of

Fraud [Notice No: FAA-N17]
 Notice On Technology Risk Management [Notice No: FAA-
N18]
 Notice on the Distribution of Direct Purchase Insurance
Products [“DPI”] [Notice No: FAA-N19]
 Notice On Cyber Hygiene [Notice No: FAA-N21]
NOTICE ON REPORTING
SUSPICIOUS ACTIVITIES
& INCIDENTS OF FRAUD

[NOTICE NO: FAA-N17]

Effective Date: 23 Jan 2013

Applies to all:
 Licensed financial advisers
NOTICE ON REPORTING SUSPICIOUS
ACTIVITIES & INCIDENTS OF FRAUD
[NOTICE NO: FAA-N17]
Sets out the requirements for financial advisers:

 Lodge Form F1* with MAS within 5 working days after the
discovery of any suspicious activity or incident of fraud that
will affect their safety, soundness or reputation

 Please refer to Appendix 7A (page 296) for Notice No: FAA-

N17 under the Financial Advisers Act (Cap. 110)

*F1 - Suspicious Activities & Incidents of Fraud Report

*Note that Appendices are testable 294

NOTICE ON REPORTING SUSPICIOUS
ACTIVITIES & INCIDENTS OF FRAUD
[NOTICE NO: FAA-N17]
Appendix 7A

In addition to Form F1:

 Licensed financial adviser shall still file a Suspicious Transaction

Report (STR) [in accordance with FAA-N06 - Prevention Of Money
Laundering And Countering The Financing Of Terrorism (Refer to
Chapter 6)]

 For incidents of fraud, a licensed financial adviser should

 Lodge a police report and submit to the Authority a copy of the
report
 If a police report has not been lodged, it should notify the
Authority of the reasons for its decision
NOTICE ON REPORTING SUSPICIOUS
ACTIVITIES & INCIDENTS OF FRAUD
[NOTICE NO: FAA-N17] 297

Appendix 7A Details to be furnished in Form F1

1. Identification details of reporting financial institution

2. Details of suspicious activity / incident of fraud that is
material to the safety, soundness or reputation of the
financial institution
3. Reasons why the activity / incident is material to the safety,
soundness or reputation of the financial institution
4. Reasons for not lodging a police report on the incident of
fraud

Report to be submitted by post, fax or encrypted email

NOTICE ON
TECHNOLOGY RISK
MANAGEMENT

[NOTICE NO: FAA-N18]

Effective Date: 01 July 2014

Applies to all:
 Licensed financial advisers
 Exempt financial advisers
NOTICE ON TECHNOLOGY RISK
MANAGEMENT [NOTICE NO: FAA-N18]

Sets out the requirements for financial advisers

to ensure:

• High level of reliability, availability and recoverability of

critical IT systems

• IT controls are implemented to protect customer information

from unauthorised access or disclosure

• Please refer to Appendix 7B (page 298) for Notice No: FAA-

N18 under the Financial Advisers Act (Cap. 110)

*Note that Appendices are testable 294

NOTICE ON TECHNOLOGY RISK
MANAGEMENT [NOTICE NO: FAA-N18]

Appendix 7B Key Requirements

• Identify critical systems*

• maintain high availability for critical systems

Maximum unscheduled downtime does not exceed a total of

for each critical system that affects
the licensee’s operations or service
4 hours within any period of
to its customers 12 months

* “critical system” – a system, a failure of which will cause significant

disruption to the operations of the licensee or materially impact the
licensee’s service to its customers 298
NOTICE ON TECHNOLOGY RISK
MANAGEMENT [NOTICE NO: FAA-N18]

Appendix 7B Key Requirements

not more than

Recovery Time Objective (“RTO”)*
4 hours for each critical system
Validate and document
1. How it performs its system recovery
testing at least ONCE every 12 months
2. When the RTO is validated during the
system recovery testing

*The RTO is the duration of time, from the point of disruption, within which
a system must be restored
NOTICE ON TECHNOLOGY RISK
MANAGEMENT [NOTICE NO: FAA-N18]

Appendix 7B Technology Risk Management

Upon the discovery of a relevant incident*

Notify the Authority as soon as possible but not later than 1 hour
Submit a root cause and within 14 days
impact analysis report or a longer period allowed by the Authority

*“Relevant incident” means a system malfunction or IT security incident,

which has a severe and widespread impact on the licensee’s operations or
materially impacts the licensee’s service to its customers

299
NOTICE ON THE
DISTRIBUTION OF DIRECT
PURCHASE INSURANCE
PRODUCTS [“DPI”]
[NOTICE NO: FAA-N19]
Last Revised: 30 Aug 2019

Applies to all:
 Licensed financial advisers
 Exempt financial advisers
 And their representatives
When providing either or both of the following types of financial advisory service
which are solely incidental to the distribution of DPI:
1. Advising others, either through any publication or writing (other than by
issuing or promulgating any research analysis or research report), concerning
any DPI and/or; 300
2. Arranging any contract of insurance in respect of any DPI
NOTICE ON THE DISTRIBUTION OF
DIRECT PURCHASE INSURANCE PRODUCTS
[“DPI”] [NOTICE NO: FAA-N19]

Distribution of DPI should be only through:

1. Representative; Financial Adviser who is a Tier 1
life insurer must minimally
2. Customer service officer or; distribute DPI at the Tier 1 life
insurer’s principal place of
3. Online direct channel
business or branch office (not a
mobile branch)

What is a Tier-1 life insurer?

• Established or incorporated in Singapore
• A direct life insurer with total assets of at least SGD$5 billion
• Have higher corporate governance standards
301
NOTICE ON THE DISTRIBUTION OF
DIRECT PURCHASE INSURANCE PRODUCTS
[“DPI”] [NOTICE NO: FAA-N19]
Sets out the requirements for the distribution of DPI
1. Implementation of safeguards

2. Provision of product information

3. Provision of avenues to address general queries, complaints and claims

4. Implementation of internal policies and processes

5. Roles and responsibilities of a representative or customer service officer

• Please refer to Appendix 7C (page 300) for Notice No: FAA-

N19 under the Financial Advisers Act (Cap. 110)

*Note that Appendices are testable 300

NOTICE ON THE DISTRIBUTION OF
DIRECT PURCHASE INSURANCE PRODUCTS
[“DPI”] [NOTICE NO: FAA-N19]
Appendix 7C 1. Implementation of safeguards

FA is to ensure: How: Make

available to
Client is able to afford the • Total amount of premiums payable for the DPI client tools
premiums payable in and
calculators
respect of the DPI which
DPI adequately covers his • Coverage of the DPI enable the
client to
protection needs calculate:
Client has not • Provide / Highlight the information relating to
misunderstood any features the DPI
or terms and conditions of • Ensure accurate declaration / completion of the
proposal form
the DPI • Alert the client of the necessary (e.g. the DPI is
not a savings account or deposit) in a clear,
simple and concise manner before the client
completes his application for the DPI (Refer to
page 303 for details)
NOTICE ON THE DISTRIBUTION OF
DIRECT PURCHASE INSURANCE PRODUCTS
[“DPI”] [NOTICE NO: FAA-N19]
Distribution via:
• Representative
Appendix 7C 2. Provision of product information • CSO

Representative or customer service officer shall furnish the

following documents to the client:

1. Documents set out in paragraph 37(b) of the MAS Notice on

Recommendations on Investment Products (FAA-N16)

2. Fact sheet and Checklist that are prepared by a direct life

insurer (in accordance with the industry standards for DPI, as
issued by the Life Insurance Association, Singapore)

303
NOTICE ON THE DISTRIBUTION OF
DIRECT PURCHASE INSURANCE PRODUCTS
[“DPI”] [NOTICE NO: FAA-N19]
Distribution via:
• Online direct
Appendix 7C 2. Provision of product information channel

• Provide the information and comply with the requirements in

1. Implementation of safeguards

• At the point of a client’s application for the purchase of a DPI:

• Provide the information required in Documents, Fact sheet
and Checklist
• An online copy of, or access to the full and actual policy
wordings of the DPI

303
NOTICE ON THE DISTRIBUTION OF
DIRECT PURCHASE INSURANCE PRODUCTS
[“DPI”] [NOTICE NO: FAA-N19]
3. Provision of avenues to address
Appendix 7C
general queries, complaints and claims

• Appropriate avenues must be set up to address general

queries from its clients relating to DPI, including but not
limited to Phone or Email helplines

• FA must also provide information such as:

• Contact details
• Information on the claims process and
• Process for filing complaints
NOTICE ON THE DISTRIBUTION OF
DIRECT PURCHASE INSURANCE PRODUCTS
[“DPI”] [NOTICE NO: FAA-N19]
Appendix 7C 4. Implementation of internal policies and processes

For distribution via Representative and CSO:

• Clear guidelines on:

• Manner of distribution of DPI
• Informing clients the manner in which DPI may be purchased
• Informing clients locations where a DPI may be purchased

• Training for every representative or customer service officer,

who distributes DPI, minimally covering:
• Role and scope of responsibilities of a representative or
customer service officer in relation to his distribution of DPI
• Risks and features of DPI
NOTICE ON THE DISTRIBUTION OF
DIRECT PURCHASE INSURANCE PRODUCTS
[“DPI”] [NOTICE NO: FAA-N19]
Appendix 7C 4. Implementation of internal policies and processes

For distribution via Representative and CSO:

Controls and procedures to ensure the proper conduct of the

representative or customer service officer who distributes DPI

Including, where appropriate :

1. Procedures to make call-backs to clients
2. Conducting mystery shopping exercises
NOTICE ON THE DISTRIBUTION OF
DIRECT PURCHASE INSURANCE PRODUCTS
[“DPI”] [NOTICE NO: FAA-N19]
Appendix 7C 4. Implementation of internal policies and processes

For distribution via Online direct channel:

• Controls and safeguards to adequately address information

security risks
• Appropriate business continuity plan to minimise system
downtime or component failures
• Ensure the functionality and continued operation
NOTICE ON THE DISTRIBUTION OF
DIRECT PURCHASE INSURANCE PRODUCTS
[“DPI”] [NOTICE NO: FAA-N19]
5. Roles and responsibilities of a
Appendix 7C
representative or customer service officer

All product information disclosures and information provided to

clients in relation to a DPI should be:

 CLEAR Recall: Section 25 and 26

of FAA [FAA-N03]
 ADEQUATE
covered in Chapter 4
 NOT FALSE OR MISLEADING

Recommendation in relation to a DPI which is not solely incidental to

the distribution of the DPI:
 must comply with the Act, the Regulations and Notices which apply
to the provision of financial advice
NOTICE ON CYBER
HYGIENE

[NOTICE NO: FAA-N21]

Effective Date: 06 Aug 2019

Applies to all:
 Licensed financial advisers
NOTICE ON CYBER HYGIENE

A relevant entity need to comply with the requirements in this Notice to

the extent that it is able to exercise control over a system to ensure
compliance with that requirement, in all of the following ways:

• The relevant entity can exercise direct control over the system to
ensure compliance with that requirement;

• A relevant entity can exercise indirect control over the system by

requiring the system provider to ensure compliance with that
requirement;

• Reasonable for the relevant entity to procure an alternative system

provider over whom the relevant entity is able to exercise such
indirect control, to provide the system.
NOTICE ON CYBER HYGIENE

Sets out the cyber security requirements on:

 Securing administrative accounts
 Applying security patching
 Establishing baseline security standards
 Deploying network security devices
 Implementing anti-malware measures
 Strengthening user authentication

• Please refer to Appendix 7D (page 306) for Notice No: FAA-

N21 under the Financial Advisers Act (Cap. 110)

Refer to pages 306-307

of the textbook for the 294
list of definitions
NOTICE ON CYBER HYGIENE

Appendix 7D Cyber Hygiene Practices

Cyber Hygiene Practices

Administrative Accounts • Ensure that every administrative account is
secured to prevent any unauthorised
access to or use of such account
Security Patches • Applied to address vulnerabilities to every
system within a timeframe that
commensurate with the risks posed by
each vulnerability

• Where no security patch is available to

address a vulnerability:
• Must have controls instituted to
reduce any risk posed by such
vulnerability to such a system
NOTICE ON CYBER HYGIENE

Appendix 7D Cyber Hygiene Practices

Cyber Hygiene Practices

Security Standards • Ensure that every system has a written set
of security standards and conforms to it
• Where the system is unable to conform:
• Ensure that controls are instituted to
reduce any risk posed by such non-
conformity
Network Perimeter • Implement controls at its network
Defense perimeter to restrict all unauthorised
network traffic
Malware protection • Ensure that one or more malware
protection measures are implemented on
every system
• Mitigate the risk of malware infection
NOTICE ON CYBER HYGIENE

Appendix 7D Cyber Hygiene Practices

Cyber Hygiene Practices

Multi-factor • Ensure that multi-factor authentication is
Authentication implemented for:
• All administrative accounts
• Network device that is a critical
system
• All accounts on any system used to
access customer information through
the internet
This requirement does NOT apply for the period between 6 August 2020 and 5
February 2021 (both dates inclusive), if all of the following conditions are met:
• Identifies all the risks or potential risks posed by its noncompliance and
implements controls to reduce the risks identified
• Committee or a member of the senior management (CEO or equivalent) agrees
with the risk assessment and is satisfied that the controls to be implemented
are adequate to reduce the risks
THE END

FINISH
CMFAS Module 5: Rules &
Regulations for Financial
Advisory Services
Chapter 8: MAS Notice Nos- MAS302 and
MAS307

5th Edition April

The information is provided on the basis that all

You are highly advised to read the Study Guide

provided by the Singapore College of
Insurance for your exam preparation and do not
solely depend on this e-learning module as this
is only a supplement to aid in your exam
preparation.

You are not allowed to print and download

Notice No: MAS 302

Part 1-Mandatory Requirments

Notice No: MAS 302

Part 2- Guidelines

Notice No: MAS 307

Part 1- Mandatory Requirements

Notice No: MAS 307

Part 2-Non-Mandatory Standards
Key Learning Objectives

• After reading this chapter, you should be able

to:
• Understand the requirement set out in:
• Notice No.: MAS 302
• Notice No.: MAS 307
Notice No: MAS 302 Notice
Product Development and Pricing
Part 1- Mandatory
requirements

Prudent Management Oversight

Management :
 Implement and maintain adequate controls in the
development and pricing of insurance products, and ILP sub-
funds
Insurer’s Board of Directors:
 Give approval to procedures and policies in these products
and sub-funds
Notice No: MAS 302 Notice
Product Development and Pricing
Prohibited Payout Features

Shall not include in any insurance product, where policy holder or

new customer has submitted a proposal to the insurer on or after 1
October 2013 a term or condition which–

1. Provides a settlement option

2. Allows the payment of any part of the policy moneys

ascertained to be due and payable under the policy to be made
more than 10 years after the occurrence of the insured event

(in the event an insurance product where policy moneys are to be paid out
over a period of time and the policy no longer provides for any payment of
policy moneys on the happening of any subsequent contingency)

Insurance products where outstanding payments are contingent on the

termination or continuance of human life or the insured event, (i.e. a
policy which covers total and permanent disability or long term care)
Notice No: MAS 302 Notice
Product Development and Pricing

Disclosure to Policyholders and Entitled Persons who have

exercised a Settlement Option and the Settlement Option has not
come into effect

Insurer shall notify: What to notify?

That moneys payable in accordance with the settlement option−

(i) is not covered under the PPF Scheme; and
(ii) in the event of insolvency of the insurer, rank after policy
liabilities and equally with the unsecured liabilities of the insurer
Notice No: MAS 302 Notice
Product Development and Pricing
Disclosure to Policyholders and Entitled Persons who have
exercised a Settlement Option and the Settlement Option has not
come into effect

Insurer shall notify: When & Who to notify?

On or before the date the insurer next sends a policy statement

to the policyholder or entitled person upon:
• Exercising a settlement option prior to 1 October 2013
• Settlement option has not come into effect

Within one month from the date of the exercise of the settlement
option upon policyholder or entitled person:
• Exercising a settlement option on or after 1 October 2013
• Settlement option has not come into effect
Notice No: MAS 302 Notice
Product Development and Pricing
Disclosure to Policyholders and Entitled Persons who have
exercised a Settlement Option and the Settlement Option has
come into effect

Insurer shall notify: What to notify?

• That moneys payable in accordance with the settlement option−

(i) is not covered under the PPF Scheme; and
(ii) in the event of insolvency of the insurer, rank after policy
liabilities and equally with the unsecured liabilities of the insurer

• The interest rate applicable to moneys payable in accordance with

a settlement option, and whether such interest rate is guaranteed
and the amount of such moneys together with any interest
accrued, due to the policyholder or entitled person as the case
may be
Notice No: MAS 302 Notice
Product Development and Pricing
Disclosure to Policyholders and Entitled Persons who have
exercised a Settlement Option and the Settlement Option has
come into effect

Insurer shall notify: Who and When to notify?

On or before the date the insurer next sends a policy statement

to the policyholder or entitled person, and thereafter at least
annually upon:
• Exercising a settlement option prior to 1 October 2013
• Settlement option has not come into effect

Within one month from the date of the exercise of the settlement
option upon policyholder or entitled person and thereafter at
least annually :
• Exercising a settlement option on or after 1 October 2013
• Settlement option has not come into effect
Notice No: MAS 302 Notice
Product Development and Pricing
Approval For New Product
An insurer shall:
• Obtain written approval from MAS before offering any product with any
feature that does not appear in any product in the insurer’s then-existing
business portfolio

• Request for approval must be written and submitted not later than 1 month
before the proposed official product launch date to MAS

This does not apply to:

• Short-term Accident and Health policy
• Term policy having a duration ≤ 5years
• A Direct Purchase Insurance Product as defined under MAS Notice 321 – Notice
on Direct Purchase Insurance Products

Contravention of Requirements Imposed:

Contravention is an offence;
Penalty is as specified in Section 55(2) of Insurance
Act (Cap 142)
Notice No: MAS 302 Notice
Product Development and Pricing

Part 2- Guidelines

Notification For Products Launched

notify MAS, in writing notify together with

(both hardcopy and relevant product
softcopy), within 7 documents with the
working days of launch required information

Written approval does not apply to:

 Short-term accident and health policy; or
 Term policy having a duration of 5 years or less
 Direct Purchase Insurance Product as defined under MAS
Notice 321 – Notice on Direct Purchase Insurance Products
Notice No: MAS 302 Notice
Product Development and Pricing
Notification For Products Launched
Other examples of circumstances for notification include:

increasing the number

changing the policy
of covered dread
term for single
diseases under their
endowment products;
whole life policies;

offering a choice of
offering TPD benefits
different frequency or
to whole life policies
premium payments
which previously were
which were not
not included
available previously;
Notice No: MAS 302 Notice
Product Development and Pricing

The standards set out in Part II are not mandatory in that failure
by an insurer to comply with any of the standards shall not by
itself render the insurer to be in breach of Notice No: MAS 302.
However, the MAS expects insurers to observe the standards as
set forth in this Part II

Failure to comply with these standards, MAS will

consider whether to:

• Approve a new product;

• Revoke the approval for a product; or
• Issue directions for the withdrawal of a product
What is an ILP?
Investment Linked Policy

Insurance
Cash / Fixed
Deposits
25%
Collective
Investment 30 stocks
Scheme (CIS)
Investment Aka ILP Sub-
50%
3 Bonds Fund
25%
How does CIS work?

Given back to

Returns Investors

Pool their money in

That generates

Fund
Securities
(CIS)
Which is invested in
How does CIS work?
Unit Holder
(Investor aka
Fund Manager
Participants)

Collective
Investment
Scheme

Trustee Securities
(e.g. Stocks, Bonds)
What is a trustee deed?

A trust deed is a formal

document which outlines the
terms of a trust agreement.
The information in the trust
deed includes the power of
the trustee and any
restrictions on investment
vehicle.
MAS 307 Notice
Investment-Linked Policies (ILP)
Part I - Mandatory Requirements

Notification to MAS
Type of Notification Requirement
Launch of new sub-fund  At least 21 days’ notice, and submit:
• Product Summary (Appendix A)
• Policy (Appendix B)
• Policy Illustration
• Information on ILP sub-fund
(Appendix G)
• Product Highlights Sheet (Appendix
H)
 If units in an ILP sub-fund are Excluded
Investment Products insurer should
state in the product summary and the
PHS that the units in the ILP sub-fund
are Excluded Investment Products.
MAS 307 Notice
Investment-Linked Policies (ILP)
Requirement
Significant changes to sub-fund  At least 1 month before the change
(examples of significant change: 317-318)
 Submit a copy of any document
(listed under ‘Launch of new sub-
fund’) with changes arising from
significant change(s) to the sub-fund
to MAS for notification purpose
Valuation of units in ILP sub-
fund  Price of unit based on NAV of sub
The units of an ILP sub-fund shall be fund / # units outstanding
issued, redeemed or repurchased at a
 Price can be adjusted by any fees or
price arrived.
charges payable
*Does not apply during the initial offer
 For capital guaranteed sub-fund,
period of the ILP sub-fund price is the higher of Guaranteed price
OR price valuation at maturity
MAS 307 Notice
Investment-Linked Policies (ILP)
Requirement
Audit of ILP Sub-  Audit annually by one of the following methods:
Funds 1. Audit by way of the first method  on the
financial statements of each ILP sub-fund
2. Audit by way of the second method  audit
on the internal control and processes of the
ILP sub-funds

• Audit by way of the second method:

• Inaugural audit completed not later than 3
months after the ILP sub-fund’s year end.
• Subsequent audit completed not later than
the next financial year end (not more than 12
months)
• Period under review not less than 12 months
• Audi report prepared include objectives in pg
320-321
MAS 307 Notice
Investment-Linked Policies (ILP)

Requirement
Audit of ILP Sub-funds which  Insurer to appoint an external auditor
are terminated or Matured  Audit certificate to be prepared for
terminated or matured sub-funds :
 Complete within 6 months from
termination/maturity
 Send MAS a copy within 30 days of
completion of the audit
 Retention by insurer for 5 years from
maturity/termination
 Make available to policy owner within
30 days from their request if such
request is made within 5 years from
the date of termination or maturity
MAS 307 Notice
Investment-Linked Policies (ILP)
Requirement
Disclosure  Accurate, not false or misleading, and updated
information (within 12 months)
 Inform existing policyholders of any significant
change to be made not later than 1 month before
the change takes effect
 Information disclosed is clear, language used is
simple and plain and not false or misleading
 Statement to Policyholders sent within 30 days of
anniversary
 Semi-annual report of sub-fund sent within 2
months
 Relevant Audit report sent within 3 months

• Except where Semi-Annual Report or the Relevant Audit Report covers a

period of less than 3 months from initial launch date
• Termination or maturity date of the ILP sub-fund is within 1 month from
the date the Semi-Annual Report or the Relevant Audit Report is due
MAS 307 Notice
Investment-Linked Policies (ILP)

Requirement
Payments from the  Insurer shall not pay or cause or permit to be
sub-fund paid, out of the assets of the ILP sub-fund:
- Any marketing, promotion, or advertisements
- Any fees not provided for in product summary
and contract
- Any payments that are unfair or against the
interests of the policyholder
MAS 307 Notice
Investment-Linked Policies (ILP)

Requirement
Advertisements  Insurer shall not provide information that are:
and publications - False and misleading
- Cannot be justified on the facts known
 Insurer shall follow the following set out in
Appendix H:
 Contents of Advertisement
 Past performance of ILP sub-fund
 Comparison of Past Performance of ILP Sub-Fund with
that of another CIS / ILP Sub-Fund / Index
 Performance of Manager or Sub-Manager
 Future Performance of ILP Sub-Fund
 Legibility and Audibility

Appendix H is testable
(pg 345 – 351)
MAS 307 Notice
Investment-Linked Policies (ILP)
Requirement

Cash Rebates and Soft Dollars  Manager does not retain, for its own
(pg 325) account, cash or commission rebates
arising out of transactions for the ILP sub-
fund executed in or outside Singapore.
 The insurer should ensure that the manager
shall not receive soft dollars in the
management of the ILP sub-fund OR Goods
& Services
 Insurer shall ensure that manager maintains
a records of all soft dollar received
ILP sub-funds admitted under  The insurer shall not charge any costs
the CPF Investment Scheme arising from CPF failed trades to the ILP
sub-fund.
Naming of sub-fund  Name is clear and not misleading with
regards to its nature and risks
MAS 307 Notice
Investment-Linked Policies (ILP)
Requirement

Requirements on the  Where the EIP-ILP sub-fund holds units in a

insurer issuing an ILP, collective investment scheme, the units of which
where the units in an are Excluded Investment Products (the
ILP sub-fund within “underlying EIP-CIS”), and such units cease to be
the ILP are Excluded classified as Excluded Investment Products, elect
Investment Products to:
(“EIP-ILP sub-fund”)  maintain the classification of the units in the EIP-
ILP sub-fund as Excluded Investment Products
by disposing the units in the underlying EIP-CIS
as soon as practicable (page 326)
MAS 307 Notice
Investment-Linked Policies (ILP)
Part II - Non-Mandatory Standards

Compliance with non-mandatory standards:

• The standards set out in Part II of Notice No: MAS
307 are not mandatory
• Failure by an insurer to comply with any of the
standards shall not of itself render the insurer to be
in breach of MAS 307
• However, the MAS expects insurers to observe the
standards as set forth in Part II of Notice No: MAS 307
• The MAS may issue directions to the insurer to
withdraw any ILP sub-fund which does not meet the
regulatory standards required under this Notice
Payment of Redemption Proceeds

An insurer should treat a redemption request as

received on day T if it is received with all requisite
documents and information by the close of dealing
according to the product summary.
Investment Guidelines, Borrowing
Limits And Other Requirements

 In particular, an insurer should ensure the requirements of the

Code apply to:
 A money market ILP sub-fund as if it were a money market fund;
 A hedge ILP sub-fund as if it were a hedge fund;
 A capital guaranteed ILP sub-fund as if it were a capital guaranteed
fund;
 An index ILP sub-fund as if it were an index fund; and
 A property ILP sub-fund as if it were a property fund.
 Where the ILP sub-fund contains a novel or new structure or
new risk, the manager should consult the MAS prior to the
notification.
Payment of Redemption Proceeds

Bonds and Money Market ILP sub-funds invested in

ILP sub-funds another CIS
(Within T+4 business (Within T+7 business days)
days)
Payment of
Redemption
Property ILP sub-funds Proceeds
Within period specific in
Appendix 6 of the code Others
Hedge ILP sub-funds (Within T+6 business
As stated in the product days)
summary under Annex Ab
Payment of Redemption Proceeds

Requirement

Transactions with related  Manager NOT be allowed to:

corporations  invest funds in the insurer’s or its own
securities, or related corporations with
exceptions (pg 328)
 lend monies to related corporations of
the manager or insurer
 buy for, or on behalf of, the sub-fund,
real estate assets owned by the insurer
or manager
Transactions at Arm’s  For all transactions with, or for the sub-
Length fund
What is arm’s length transaction?

A transaction between two related or affiliated

parties that is conducted as if they were unrelated,
so that there is no question of a conflict of interest.
Or sometimes, a transaction between two otherwise
unrelated or affiliated parties.
Payment of Redemption Proceeds
Requirement
Best Execution • Take reasonable steps to obtain best possible
results for sub-fund, considering : price, costs,
size and nature of transactions, etc…

Use of Financial Derivatives • The related risks to such financial instruments

must be duly measured, monitored and
managed on an ongoing basis

• Insurer should not act as a counterparty of an

OTC (Over-the-counter) derivative invested into
by sub-fund

Use of Credit Ratings • Not to solely rely on ratings issued by credit

rating agencies
Use of Credit Ratings

Make its own credit assessment to verify ratings issued by credit

rating agencies.

*All rating used should be based on a rating scale that is globally

comparable.

In the event of difference: Take the lowest rating

Payment of Redemption Proceeds

Exercise Of Voting Rights

In the case where the insurer exercises the votes or
has appointed another party to exercise the votes
on its behalf in relation to investments of an ILP sub-
fund, the insurer or manager should:
a) maintain a record of how the votes should be
exercised
b) ensure that there is no conflict of interest in the
exercise of the votes
Payment of Redemption Proceeds
Requirement

Transactions consistent with ILP sub-  The manager should acquire permissible
fund’s objective and approach investments as defined in Appendix 1 of the Code
and enter into transactions which are consistent
with the investment objective and approach of
the ILP sub-fund
Significance Influence  The insurer and manager should not, through the
ILP sub-fund, carry out its investment activities in
manner which would enable it to exercise
significant influence over the management of
an issuer of permissible investments.
Dealing in Units  The insurer should deal in units in an ILP sub-fund
in accordance with the product summary, and it
should be at least one dealing day a month.
Suspension of Dealings  Only in exceptional circumstances (best interest of
client)
 Insurer to inform MAS immediately giving reasons
for the suspension.
 Resume dealings as soon as practical, and within
21 days.
 The insurer should notify MAS when dealing in
units is resumed.
Payment of Redemption Proceeds
Requirement

Valuation of Assets of sub-fund  Quoted investments: based on official closing

price or last known transacted price in an
organised market
 Unquoted investments: based on fair value
(price that would reasonably receive upon
current sale on the investment) – this is
determined with due care and good faith

Frequency of Valuation  Units to be valued every business day

 If sub-fund doesn’t offer dealing every
business day, then minimum once a month
 Property sub-funds: minimum one valuation
annually
Insurer should ensure that the value of a unit of
the ILP sub-fund is published at least once every
dealing day.
Payment of Redemption Proceeds
Requirement
**Rounding differences  Example
(from calculating unit Price per unit
price or from calculating = NAV ÷ # units outstanding
the number of units to be = [S$ 122.4m] ÷ 100m
issued)
= S$ 1.224
If policy owner has 10 000 units and wish
to redeem all his units at $1.22 per unit:
S$(1.224 – 1.22) x 10 000 units = S$ 40

Rounding difference ($40) to be credited

into the ILP sub-fund
Payment of Redemption Proceeds
Valuation Errors and Compensation
 Insurer or manager to inform MAS as soon as error is detected,
using the ‘valuation error report template’
 A revised valuation should be performed by person responsible
for the valuation to be done
 If error is  0.5% of ILP sub-fund’s NAV per unit after
adjustment of error, compensate:
 affected policy owners, and notify them of compensation;
 ILP sub-fund for any losses incurred due to error
 Insurer to notify MAS when compensation is completed
Payment of Redemption Proceeds
Requirement

Delegation:  Insurer to ensure compliance with

- Sub-managed abroad MAS 307 if sub-fund management is
- Investment in foreign delegated
CIS  Insurer to ensure adequate
procedures in place to monitor and
ensure the function delegated is
performed in an efficient and proper
manner
 If > 10% of assets of ILP sub-funds is
sub-managed (or invested in foreign
CIS) abroad, insurer and related
corporations must manage 
S$500m of discretionary funds in
Singapore
• If 100% of assets of the ILP sub-fund
is invested in CIS, should follow
substantially the code
Payment of Redemption Proceeds

Performance Fees

 Only paid after consideration of other payments

 Crystallisation of performance fees once a year only 2
methods:
 Fulcrum fee arrangement
 High water mark arrangement

(details in chapter 10)

Payment of Redemption Proceeds
Requirement
Prohibited Activities  Direct lending of monies
 Granting of guarantees
 Underwriting
 Short-selling (with exceptions of financial
derivatives)
Rectification of Breaches  Insurer or manager should take all necessary
action to rectify any breach of the notice no.:307
as soon as practicable
 Insurer or manager should not enter into any
transaction that would increase the extent of
breach

Notification of Breaches  Insurer to inform MAS within 3 business days of

any breach of standards and requirements
under MAS 307
 Other breaches due to change in value of sub-
fund, or downgrading of a credit rating, etc
need not be reported if rectification is made
within 3 months
Payment of Redemption Proceeds

Requirement
Naming of sub-funds  Appropriate, including the use of
acronyms
 Not undesirable
 Not misleading
 ‘Capital protected’ and ‘Principal
protected’ can’t be used
Product Highlights Sheet

Highlights key features and risks of the ILP sub-fund to potential

investors. It shall:

 clearly disclose required information in the format as set out in

Appendix H

 contain information included in the product summary

 not contain any information that is false or misleading

Appendix H is testable
(pg 352 – 353)
Requirements in relation to
Preparation of PHS

The templates for the PHS and serve as minimum

requirements:
Strict format adherence:

 Not more than 4 pages (excluding glossary and

diagrams); and not more than 8 pages
(including glossary and diagrams)

 Information on PHS, including footnotes and

references, must have a minimum font size of
10-pt, Times New Roman
Sections in the Product Highlights Sheet
(Refer to Pages 352-359)

Sections What It Tells You

Name of ILP Sub-Fund  Information on product type,
launch date, manager, dealing
frequency, expense ratio, etc
 Who the sub-fund is suitable
for
Key Features of Sub-fund  What you are investing in
 Investment strategy
 Parties involved
Sections in the Product Highlights Sheet

Sections What It Tells You

Key Risks of the  Market and credit risks
Investment  Liquidity risks
 Product-specific risks

Fees and Charges  What fees are payable

Valuations  How often

Exiting from this  How do exit

Investment  What the risks and costs are
Contact Information
Appendix and Glossary
THE END

FINISH
CMFAS Module 5: Rules &
Regulations for Financial
Advisory Services
Chapter 9: MAS Guidelines – Part I

5th Edition April

The information is provided on the basis that all

You are highly advised to read the Study Guide

provided by the Singapore College of
Insurance for your exam preparation and do not
solely depend on this e-learning module as this
is only a supplement to aid in your exam
preparation.

You are not allowed to print and download

Guidelines on Fit &

Proper Criteria

Chpt
Guidelines on
Applications for
9
Approval of
Arrangements

Due Diligence
Checks and
Documentation

Use of term
Standards Of Conduct
“Independent”
for Financial Advisers
Key Learning Objectives

 Understand Guidelines on Criteria for the grant of a Financial

Adviser’s License
 Fit and proper Criteria
 Use of the Term “Independent” by Financial Adviser
Guidelines on Criteria for Grant of a Financial
Adviser’s License

Who needs to apply for a Financial Adviser’s Licence?

Corporations which carry on a business of

providing any financial advisory service
Except those that are exempt under
section 23 of the Act

Financial Advisory Service:

• Advising others, either directly or through publications or writings, whether in
electronic, print or other form, concerning any investment product, or
• 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
Guidelines on Criteria for Grant of a Financial
Adviser’s License

Provides guidance on the licensing admission criteria for

applicants of an FA’s licence

Criteria:

Applicant is required
Grant is given only to to have a
a corporation physical presence
in Singapore
Factors for Consideration

 At least 5 years of relevant working

CEO and Executive experience in financial advisory
Director services
 With at least 3 years of managerial
capacity
 CEO is residing in Singapore
 Whether CEO or EDs are placed in a
position of conflict of interest
 At least 2 members; and
Board of Directors  At least 1 must be a resident in
Singapore
 At least 2 full-time individuals as
Representatives appointed representatives to provide
the financial advisory services the
licence is for
Factors for Consideration

Minimum Financial Requirements

Providing advice on:

Paid-up capital  Investment products excluding: futures
S$150,000 contracts, spot forex contracts, or OTC
derivatives contracts the value of which
is determined by with reference to / is
derived from / varies by reference to:
1. The value or amount of one or more
currencies
2. Fluctuations in the values or amounts
of one or more currencies indices;
 Arranging contracts of life insurance
other than re-insurance
Factors for Consideration

Minimum Financial Requirements

Providing advice on:

Paid-up capital  Futures contracts, spot forex contracts,
S$300,000 or OTC derivatives contracts the value of
which is determined by with reference
to / is derived from / varies by
reference to:
1. The value or amount of one or more
currencies
2. Fluctuations in the values or amounts
of one or more currencies indices;
Providing advice on a combination of
both categories
Factors for Consideration
Minimum Financial Requirements
Professional • At least S$ 500,000 with a deductible
Indemnity Insurance of not more than 20% of its NAV at the
(PII) end of its immediate preceding
financial year

367
Factors for Consideration

Criteria for the Grant of a Financial Adviser’s License

Supervision by Home  Foreign companies to be properly

Regulatory Authority supervised by recognised home regulatory
authorities and requisite track record
 Adequate internal compliance systems and
Systems & Processes processes in place must commensurate
with size and complexity of applicant’s
business
 Applicant, its officers, employees,
Fit and Proper representatives and substantial
shareholders must meet this requirement
Factors for Consideration

Criteria for the Grant of a Financial Adviser’s License

 Minimum 3 years of proven track record

Track Record OR or
Shareholding  CEO should own not less than 20%
shareholding of the applicant. CEO and
EDs in aggregate should own not less than
50% shareholding

 Where appropriate, the Authority may

require an applicant to procure a Letter of
Letter of Responsibility
Responsibility from its parent company or a
related entity within the group
Guidelines on Fit & Proper Criteria
(Guideline No.: FSG-G01)

Onus is on each relevant person to establish

that it or he is a fit and proper person

Fit & Proper Test:

Honesty, integrity Competence and Financial

and reputation; capability; and soundness

370 372 373

Guidelines on Fit & Proper Criteria
(Guideline No.: FSG-G01)

369

Failure to meet the criteria MAY mean MAS :

• Refuse an application;
• Refuse to enter his name or any additional regulated activity or
financial advisory services in the public register of
representatives;
• Revoke an authorisation;
• Revoke the status of an appointed, provisional or temporary
representative; or
• Withdraw an exemption or other regulatory action by MAS
Guidelines on Fit & Proper Criteria
(Guideline No.: FSG-G01)

369
Significance and relevance of failure by a relevant
person to meet a specific criterion depends on:

a) The seriousness of, and surrounding circumstances resulting in

the person not meeting criteria
b) The relevance of the failure by the relevant person to meet the
criteria to the duties and responsibilities assumed by the person
c) Passage of time since the relevant person has failed to meet the
criteria
Guidelines on Fit & Proper Criteria
(Guideline No.: FSG-G01)

Where relevant person is an institution, the fit and proper criteria

must be met by:

 All substantial shareholders

 Every director and CEO, or equivalent persons
 Everyone it employs, authorizes, or appoints to act on its behalf to
conduct activities regulated under relevant legislations by having
appropriate recruitment policies, adequate internal control
systems and procedures

Where relevant person is an institution or exempt financial

institution, appropriate recruitment policies, adequate internal
control systems and procedures must be in place
Guidelines on Fit & Proper Criteria
(Guideline No.: FSG-G01)

Where relevant person is an exempt entity or fund management company

registered under paragraph 5(1)(i) of the Second Schedule to the Securities
and Futures (Licensing and Conduct of Business) Regulations, MAS must be
satisfied that :

• All of its substantial shareholders or equivalent persons and persons who:

(i) control, directly or indirectly, not less than 20% of the voting power
or such equivalent decision-making power in the exempt entity; or

(ii) acquire or hold, directly or indirectly, not less than 20% of the issued
shares or such equivalent share of ownership of the exempt entity

• Each of its key officers

 Meet the fit and proper criteria

Where relevant person is an exempt entity or registered
fund management company, appropriate recruitment
policies, adequate internal control systems and
procedures must be in place
Circular on Due Diligence Checks and Documentation in
Respect of the Appointment of Appointed, Provisional and
Temporary Representatives [CIRCULAR NO: CMI 01/2011]

The MAS has also issued a circular to all financial institutions to

provide additional guidance to FIs in their conduct of due
diligence checks and documentation relevant to the fit and proper
certification of representatives under the RNF.

01
Fit and Proper Declaration

02
Due Diligence Checks

03
Continuing Education

04
Conflict of Interest
Circular on Due Diligence Checks and Documentation in
Respect of the Appointment of Appointed, Provisional and
Temporary Representatives [CIRCULAR NO: CMI 01/2011]

Fit & Proper Declaration

FI will obtain and maintain a written self-declaration from proposed
appointed, provisional or temporary representative to:
 Declare that he has read and understood the Guidelines on Fit
and Proper Criteria and satisfies all criteria
 Confirms that he is aware that it is an offence to give false
and misleading statements
Under section 99O of the SFA
and section 23L of the FAA:
Contravention of rule:
Fine ≤ S$50,000

376
Fit & Proper Declaration

FI to obtain details of the adverse information:

Assess if he would nevertheless be considered fit and proper to

be an appointed, provisional or temporary representative;

Maintain written records of the reasons for the FI’s conclusion that
the individual nonetheless remains fit and proper

Where appropriate, FI is required to:

 Closely monitor and supervise these representatives for an
appropriate period
Fit and Proper Declaration
FI to determine the individual’s fitness and propriety:

Conduct Maintain
Verify relevant
independent due adequate
documents
diligence checks documentation

Document, To ascertain if he is As evidence of

educational or under suspicion for having conducted
professional involvement in checks and
certificates, relevant money laundering or
terrorist financing assessment in
statement(s) from activities relation to the
CPF Board provision of the fit
evidencing that no and proper
arrears payments of certification
contributions on his
own CPF account;
377
Fit & Proper Declaration

Where:

The proposed representative has indicated any adverse

information in the self-declaration; or

The FI has any adverse information on the individual (including any

misconduct committed)

FI should:
 Declare under the “Fit and Proper Certification” section of the
representative notification submitted to MAS that it is aware
and has assessed the individual’s adverse information
Due Diligence Checks
FIs are expected to obtain a copy of the proposed representative’s
current identity documentation (e.g. NRIC, FIN or passport) and
verify his identity.
(i.e. If he is a foreigner, FI is expected to verify that he has the
relevant employment pass)

Probity Checks on Representative’s Identity

NRIC
MAS to be notified within 14
Foreign days (use Form 18) of any
Identification change in particulars .
Number Passport
Documents
Due Diligence Checks
Probity checks on Representative’s Past Records

Check the Public

Conduct Conduct probity
Register of
reference checks searches
Representatives

i.e. With previous To verify his past To verify the

employers to employment records proposed
confirm that he as an appointed, representative’s
has not been provisional or criminal or
dismissed or temporary disciplinary
asked to resign, representative in records under
and to ask if he Singapore, and if any any law
has any material Prohibition Order was
adverse record issued on him
FI should note that is an offence to employ any person who
has been issued a prohibition order that is still in effect.
Due Diligence Checks

Probity Checks on Representative's Financial Status

• FI to ensure that the rep is not the subject of:

• a bankrupt petition,
• debt repayment scheme, or
• declared and remains a bankrupt in Singapore or elsewhere

• At a minimum, the FI should obtain the proposed representative’s

records from the Ministry of Law’s Insolvency and Public Trustee’s
Office Online Portal at http://www.iptoonline.gov.sg, to ensure that he
is not an undischarged bankrupt

If the rep was previously self employed, to obtain the individual’s records
from the CPF Board to verify that he is not in arrears of his contributions to
CPF Board
Due Diligence Checks

False or Misleading Documents or Information

• Provide truthful information and declaration to its principal. Disclose

information that is material and relevant to fitness and propriety.

• FI should ensure that the information obtained from its independent

checks does not contradict the proposed representative’s self
declarations.

• Consequences:
• MAS may refuse to enter the name of an individual in the public
register of representatives,
• Refuse to enter additional type of regulated activity or
• Revoke the status of an individual

MAS will not hesitate to take regulatory action against any individual for
omissions or misrepresentations in relation to the fit and proper
declarations, and any FI for not conducting reasonable due diligence checks
Due Diligence Checks

False or Misleading Documents or Information

FIs are reminded that, under Section 99O of the SFA and Section 23L of the
FAA, any one of the following constitutes an offence:

• A principal who, in connection with the lodgment of any document under

Section 99H of the SFA and Section 23F of the FAA, makes a false or
misleading statement in a material particular, or omits from any
document lodged with the MAS any information thereby rendering the
document misleading in a material respect; and

• An individual who has provided a false or misleading statement in a

material particular to his principal which is subsequently lodged with the
MAS, or to omit giving information to his principal which causes the
lodged document to be misleading in a material respect
Periodic Declarations and Checks
Principal should obtain on a periodic basis, written self-declarations
from its representatives (Annex 1)

The principal
should determine, on the facts of each case, whether the frequency of self-declaration
should be increased

FI is to conduct the same due

diligence checks on a
periodic basis on existing representatives

The frequency of such periodic checks

should be determined by the FI, taking into account factors such as the
representative’s background and compliance track record

FI should similarly
document the periodic self-declarations, checks and its assessment in respect of
the representatives’ fitness and propriety
Continuing Education
FIs to ensure representatives to receive adequate training:
i. On knowledge and skills to conduct the regulated activities
under SFA and/or
ii. Provide the financial advisory services under the FAA
(i.e. Trained on features and risk-reward characteristics of any
investment product distributed, and representatives understand
profile of target customers of the product before being allowed
to sell it)
iii. That is well-structured on an on-going basis

MAS expects representatives to:

• Keep abreast of developments in the industry
• Update skills and knowledge relevant to the
activities they conduct
Conflict Assessment
FIs to ensure there is no conflict of interests in their representative’s:

Relationship with connected persons Personal circumstances

other business interests

work arrangements within the
(partnerships, sole proprietorships,
corporation,
directorships, shareholdings, etc)

that will impair the representative’s ability to discharge the fair dealing
responsibilities of a representative of an appointed, provisional or
temporary representative.
Conflict Assessment

Potential conflicts with the representative’s proposed regulated

activities or financial advisory services can result from:

 shareholdings or business interests;

 other roles within the company, eg back-office operations; or
 connected person’s occupation

FIs should:
i. Put in place mitigating measures to address them
ii. If compromising the representative’s ability to discharge his
duties with regulatory requirement, FI should not proceed to
appoint the individual as an appointed, provisional or
temporary representative

375
Guideline on Standards of Conduct for Financial Advisers
and Representatives [GUIDELINE NO: FAA-G04]

• Sets out conduct requirements for persons acting as financial

advisers under the FAA and their representatives.

• MAS expects that all financial advisers and representatives

regard to these guideline to help foster professional standards
and enhance confidence in financial service industry
Conduct Requirements

Integrity Objectivity Confidentiality

Competence Due Care and Disclosure to

Diligence Client

Know Your Conflicts of Complaints

Client Interest Handling

Compliance
with Laws 383
Conduct Requirements
INTEGRITY
A FA should conduct its business with honesty, fairness, integrity and professionalism to maintain
good faith and to preserve public trust in the financial services industry. And should not be involve
in fraud and dishonesty

CONFIDENTIALITY
FA should implement and maintain proper
procedures to preserve confidentiality of COMPETENCE
information it receives from a client or which FAs should act with competence and
relates to a client. strive to maintain the necessary
FA should not disclose any client’s information knowledge and expertise in its business
unless (1) Information obtained from client is activities. They should ensure that any
given to the MAS or any other government person whom it employs or appoints are
agencies in accordance with any relevant law; or suitably qualified and competent.
(2) The client has given his consent to the Relevant training should be provided to
financial adviser to disclose the information enhance the representative’s
competence, knowledge and skills.
Where the FA operates a multi-tier
OBJECTIVITY
structure, arrangement to enable it to
FA should exercise reasonable care, judgment to
properly supervise its representatives at
achieve and maintain objectivity in conducting its
every tier should be put in place.
business. FA should avoid situation that could
impair its ability to make objective
recommendations
Conduct Requirements
DUE CARE & DILIGENCE
 Prompt and Best Execution
 Supervision of Representatives
 Cessation of Business

Prompt and Supervision of Cessation of

Best Execution Representatives Business

Adequate Ensure that its

Process promptly liabilities and
in accordance to systems and
processes to obligation to all
client’s instruction clients have been
ensure proper
supervision fully discharged

Provide written
confirmation or Ensure clients
documentation continued to be
that the order has serviced by
been executed another financial
adviser

384
384
Conduct Requirements

COMPLIANCE WITH LAWS

 Financial adviser should maintain adequate knowledge of and take all reasonable
steps to ensure compliance with all applicable laws, rules and regulations
relevant to its business activity, including these Guidelines

KNOW YOUR CLIENT

DISCLOSURE TO CLIENT
 Determine client’s financial objective, risk
tolerance, financial situation, investment  General Information About
experience and particular needs the Financial Adviser
 Ensure that recommendation is suitable for  Key Features of Products
the client  Warnings, Exclusions and
 Keep records of all information it has disclaimer
obtained from its clients, the  Clear, Adequate, Not false
recommendation made and the basis of or misleading
such recommendations  Fact and Opinion
 To establish true and full identity of client  Remuneration
and comply with notices
Conduct Requirements 387

CONFLICT OF INTEREST COMPLAINTS HANDLING

 FA should act in the best interest  Financial adviser should have in
of its clients when providing place adequate procedures and
financial advisory services to its processes for handling complaints
clients relating to its financial advisory
 Disclose in writing to the client business
any actual or potential conflicts of  It should ensure that complaints:
interest arising from any • Handled in a fair, timely and
connection / association with the appropriate manner
product provider • Promptly investigated and
 Including any material information responded to
or facts that could compromise its • An officer is designated to
objectivity or independence in the handle all complaints
carrying out the financial advisory  Maintain a register of complaints,
services containing details of complaints
 Financial adviser should not place received and how they have been
its staff members in situations dealt with. Management should
where conflicts of interest may review the register regularly.
arise
Guidelines on the Use of Term “Independent” by
Financial Advisers [GUIDELINE NO: FAA-G05]

Use of the word “INDEPENDENT” suggests that FA :

Satisfied in light of their

They do not have financial or
own particular
commercial links with product
circumstances that they
providers that are capable of
are in compliances with
influencing their recommendations
Regulation 21 of the FAR
Background Information

I am an “Independent” Financial Adviser!

Financial Adviser payment and ownership

structures with product providers have become
increasingly complex and diverse.

“Independent” suggests that FA operates with

objectivity and impartiality and does not have
any potential conflict of interest when
recommending an investment product.

In light of such public expectations, the FAR

limits the use of the word “independent” by
financial advisers.
Conditions to be Met

Regulation 21(1) of the FAR

No licensed financial adviser, or exempt financial adviser and its

representatives shall use the word “independent” or any of its
derivatives in any language, or any other word or expression in any
language that is of like import to “independent”:

• In the name, description or title under which it carries on

business in Singapore
• To promote or advertise its services; or
• In respect of its provision of any financial advisory service

Any financial adviser which

contravenes Regulation 21(1) or
(2) or (3) of the FAR shall be
guilty of an offence
Conditions to be Met

Regulation 21(1) of the FAR Exception

“Independent” can be used when:

1. It does not receive any commission or other benefit from a
product provider which may create product bias, and does not
pay any commission to or confer other benefit upon its
representatives which may create product bias;
2. It operates free from any direct or indirect restriction relating
to any investment product which is recommended; and
3. It operates without any conflict of interest created by any
connection to or association with any product provider
Basic Test Of Independence

• Is whether a reasonable investor, knowing all

the relevant facts and circumstances will
perceive the financial adviser as having
conflicting interests with the investor and for
the advice or recommendation not to be
objective and impartial.

• Financial advisers clearly demonstrated that

they do not have financial or commercial link
with product providers which are capable of
influencing their recommendations.
Basic Test Of Independence

MAS will consider an FA to be ‘independent’ if:

it does not receive any:

 commission (except when it is rebated in full to the
clients); or
 remuneration where rate payable is based on the
value or number of transactions; and
 gift or benefit from any product provider that may
influence its recommendation
Basic Test Of Independence
It operates free from direct or indirect restriction on the
investment products that it provides financial advisory
services on

it operates without any conflict of interest arising from

its association or relationship with product providers
Commissions and Other Benefits

Commission sharing
Insignificant Same level of
arrangement are not
commissions or other commission for
significant for
benefits, relative to similar products or
different investment
its total revenue classes of products
products

Significant commissions or benefits for the above is

where it constitutes more than 20%

391
Product Restriction

Direct Restriction Indirect Restriction

Contractual agreement to sell

only a particular provider’s
Contractually, FA is required to
investment products, or a range
meet sales targets
of investment products selected
by the provider

If FA represents at least 4 product providers for

each class of investment products, they may not
be restricted from using the term ‘independent’

392
Relationship with a Product Provider

FAs cannot use the term, ‘independent’ when:

 They are also product providers (i.e. banks, life insurance
company)
 They are related to any of the product providers (i.e. subsidiary
of a product provider)

Financial Adviser
(Bank, fund management
Product Provider
company, life insurance
company)

393
Application of the Guidelines
 Question of independence depends on the exact circumstances
in each case

 Mere compliance with these Guidelines does not necessarily

ensure that a financial adviser can use the term “independent”

 Financial adviser must clearly satisfied and be able to

demonstrate that it is in compliance with Regulation 21 of the
FAR before using the term “independent”

393
Guidelines on Application for Approval of Arrangement
under Paragraph 11 of the First Schedule of the FAA
[GUIDELINE NO: FAA-G06]

Applications of Paragraph 11

Section 6(1) of the FAA provides that no person shall act

as a financial adviser in Singapore in respect of any
financial advisory service, unless he is authorised to do
so by a financial adviser's licence or is an exempt
financial adviser.

394
Guidelines on Application for Approval of Arrangement
under Paragraph 11 of the First Schedule of the FAA
[GUIDELINE NO: FAA-G06]

Paragraph 11 of First Schedule

Allows a foreign company providing any financial advisory advice
effected under an arrangement between it (foreign company) and
its related corporation licensed under the FAA (or is exempt under
Section 23 of the FAA), if arrangement is approved by MAS

Individuals providing financial advisory service for foreign related

corporation are not representatives as defined in the FAA, and
therefore not required to be appointed or provisional
representatives under the FAA
Assessment Criteria (of foreign related company)

Possesses competence in specific area of business to be

effected under arrangement

Discharges functions in an efficient, honest and fair

manner

Is subject to proper supervision by its home regulatory

authority

Application for approval under Paragraph 11:

Must be submitted using the format specified in Appendix 9B. The
application should include key information that seeks to address the
assessment criteria in Sections 7B and 7C of this chapter 9. (pg 396)
Other Considerations

Nature of financial advisory

services (i.e the ‘Prospecting’
Roles of the Singapore entity Adequacy of controls and
and ‘Advisory’ processes)
and its foreign-related procedures and management
proposed to be effected
corporations in relation to the oversight over proposed
under arrangement (Refer to
arrangement financial advisory services
Appendix 9A, Pages 399 -
400)

Adequacy of record keeping

Target clientele (eg retail
and documentation systems
investors, or accredited
to ensure proper audit in
investors, expert investors.)
relation to the arrangement
Other Considerations -Target clientele

 Applicants should apply a “look-through”

method to ascertain whether the end-
beneficiaries of such investment vehicles
satisfy the definition of “accredited
investor”, “expert investor” or
“institutional investor” in Regulation 2(1)
Other Investors of the FAR

 Generally, the Authority only permits

arrangements that are limited to serving
this group
 MAS have fewer regulatory concerns
about arrangement targeting at these
investors
 Due to their ability to safeguard their own
Accredited investors interests
Expert investors
Institutional investors
Guidelines on Exemption for
Specialized Units Servicing High Net
Worth Individuals under Section 100(2)
of FAA [GUIDELINE NO: FAA-G07]

MAS may grant exemption, upon application, from Sections 25, 27, 28
and 36 of the FAA, as well as from certain written directions issued
pursuant to Section 58 of the FAA, in respect of any financial advisory
services provided by the Unit of the applicant that serves high net
worth individuals. The applicant may be licensed FAs or exempt FAs

These Guidelines elaborate on:

• The criteria that the MAS will consider in assessing applications for exemption
• The types of clients that may be served by the Unit
• The general conditions that will be imposed by the MAS
Definition of “High Net Worth Individual”

≥ S$ 1m in assets
(e.g. bank deposits,
capital market products, ≥ S$ 300 000 in annual
life policies and other income
investment products by
MAS)

potential to become a
> S$2m in value of total
person with ≥ S$1m of
net personal assets
assets within 2 years

397
Extent Of The Unit being Separate
And Distinct

• The purpose of the Unit should be to target and

serve prospective high net worth individuals.

• Therefore, the Unit should have its own marketing

or client service staff who should not serve
persons, other than the high net worth individuals
served by the Unit.
Criteria Used in Assessing Applications

The track record and

Are clients of Unit reputation of the applicant
and its parent institution or
considered high net major shareholders in
worth individuals? providing services to high
net worth

The policies and

procedures on client The range of products
acceptance and risk and services offered by
profiling that Unit the Unit
has in place
In summary…

You need to know and understand:

 The criteria of the grant of a Financial Adviser Licence
 Fit and proper Criteria
 Use of the term “Independent”
 Definition of High Net Worth Individual
THE END

FINISH
CMFAS Module 5: Rules &
Regulations for Financial
Advisory Services
Chapter 10: MAS Guidelines – Part II

5th Edition April

The information is provided on the basis that all

You are highly advised to read the Study Guide

provided by the Singapore College of
Insurance for your exam preparation and do not
solely depend on this e-learning module as this
is only a supplement to aid in your exam
preparation.

You are not allowed to print and download

Execution- Structured Switching Fair Dealing Remuneration

Related Deposits Framework
Advice
Key Learning Objectives

You will need to understand the guidelines pertaining to:

• Execution-Related Advice
• Structured Deposits
• Switching
• Fair Dealing
• Remuneration Framework
Guidelines on Conduct of Business for Execution-
Related Advice [GUIDELINE NO: FAA-G08]

Section 64 of the FAA

Dealers are required to maintain certain standards when they
provide ‘execution – related advice’.

Definition of “Execution-Related Advice”

• Advice provided which is solely incidental to the execution

activities of a dealer.

• No discrete fee is charged by the dealer for the advice rendered.

414
Guidelines on Conduct of Business for Execution-
Related Advice [GUIDELINE NO: FAA-G08]

Section 64 of the FAA

Do not apply when:

• Dealer or its trading representative merely carries out
instructions by a client to buy or sell a specific capital markets
product, without making any recommendation or advice in
relation to that specific capital markets product

• Dealer exempted from complying with Section 27 of the FAA

under Regulation 33A of the FAR and a trading representative
of the dealer
Execution activities
“Execution activities” means either or both of the activities:

Dealing in capital markets

products that are specified
products which have received
approval in-principle for Dealing in capital markets
listing and quotation on, or products that are futures
are listed for quotation or contracts;
quoted on, any approved
exchange or overseas
exchange
Recommendations On Capital Markets
Products
To comply with Section 27 of the FAA,
• A dealer must have reasonable basis of recommendation

• Put in place adequate systems and processes that

commensurate with the size and complexity of its business
to ensure compliance with the requirements

• Sufficient knowledge of the client before advising on sales

or purchases of capital markets products suitable for the
client.

Investment Particular
Objectives Needs
Financial
Situation
Recommendations On Capital Markets
Products
If client does not want to provide information asked for

Warn client that it is

his responsibility to
Warn client that any ensure the suitability
Document client’s recommendations of the recommended
decision made will not have product
taken into account his
investment objectives,
financial situation and
particular needs

Client to be informed if product is traded on a margin basis,

and highlight the risks

415
What Execution activities covers

Documentation and Record-Keeping

Records must be kept for at least 6 years

Disclosure of Conflicts of Interest

Any actual or potential conflicts of interest must

be disclosed (either orally or in writing or both)
before or at the time of advice
Disclaimers

If there’s a disclaimer that they only provide

“execution only” services, systems and
procedures, and training must be put in place to
ensure that no advice is given
Dealers will be subject to statutory provisions if 415
they provide advice to clients
GUIDELINES ON STRUCTURED DEPOSITS
[GUIDELINE NO: FAA-G09]
Set out the standards of conduct expected of licensed FAs /
Exempt FAs and their representatives advising on structured
deposits, except where advice is given to:
 an accredited investor, expert investor or institutional investor

 a high net worth individual by a separate and distinct

department, division, etc. of an FA or exempt FA
GUIDELINES ON STRUCTURED DEPOSITS
[GUIDELINE NO: FAA-G09]
 any person outside Singapore, who is:
i) an individual and is not:
– a citizen of Singapore
– a permanent resident of Singapore, and
– wholly or partly dependent on a citizen or PR
of Singapore, or
ii) in any other case, a person with no
commercial or physical presence in Singapore
Use of the term “Structured Deposit”
 A structured deposit is a type of deposit, but not and not a
unique class of financial instruments.

 Labelling a product as a structured deposit in any marketing

material or product disclosure document, when it does not bear
the characteristics of a deposit, is tantamount to misleading
conduct, as investors may misconstrue that the product has the
characteristics of a deposit when in fact, it does not.

 An investment product cannot be described as a ‘deposit’ or

‘structured deposit’ unless it falls within the definition as it will
mislead investors to think the product has characteristics of a
deposit when it does not

 The above does not apply to a structured deposit that is a dual

currency investment.
418
Product Information Disclosure
Although a structured deposit is a relatively safe instrument, returns on
such products are variable and often contingent on the performance of
complex financial instruments and average retail investor may not fully
understand

Information must be clear, adequate and not false or misleading.

Every financial adviser is encouraged to review its documents regularly, to

ensure that its documents meet the above standards.
Fair and adequate description of all material information must be given to
clients:

Details of
Benefits likely All fees and
deposit-taking All risk factors
to be derived charges
institution

Early Warning, Information that

Nature of
termination exclusion, or it is not an
investment
clauses disclaimer insured deposit
Past and future performance

State that ANY illustration of past performance or

forecast on the economy is not necessarily indicative of the
future or likely performance of the structured deposit
Past and Future Performance

When providing illustrations of past and future performance of a

structured deposit, or its underlying financial instruments:

using forecast of economy, stock market, etc state that

forecast is not necessarily indicative of the future or likely
performance of the structured deposit; and

illustrate possible returns of that structured deposit, and

state that past performance is not necessarily indicative of
future performance
Recommendations on Structured Deposits

Screening
Ensure that clients
Warnings understand the
Where clients may implications of
not require any early termination
recommendation, and how the
appropriate written relevant financial
warning should be instruments work
made to them,
highlighting that
they may wish to
seek advice from a
financial adviser Reasonable Basis of
before committing
Recommendation
Recommendations on Structured Deposits
Warnings Screening
• Appropriate warnings should be made to  Should screen every client seeking to
such clients highlighting that they may invest in any structured deposit.
wish to seek advice from a financial  Any client who indicates that he may
adviser before making a commitment. At need to withdraw his funds prior to the
the minimum, the warning should maturity of the structured deposit to
convey the following message: meet certain needs (such as an elderly
– Unlike traditional deposits, structured deposits person), should be encouraged to seek
have an investment element and returns may advice from a financial adviser as an
vary early termination may result in a loss.
– In the event that you choose not to seek advice
from a licensed or an exempt financial adviser,  Important for such clients to have a
you should carefully consider whether this good understanding of how the
product is suitable for you. relevant financial instruments work
• These warnings should be in writing and before they invest in the structured
should be prominent and clear. deposit.
• A financial adviser and its representative
should document that these warnings
have been duly read and understood by
the client, and that the client wishes to
proceed after having understood the
features of the product.
• This does not apply in relation to a
structured deposit that is a dual
currency investment.
Recommendations on Structured Deposits

Training and Competency

All representatives of FAs advising on structured
deposits must pass Modules 5 & 8, or FA has
developed specific training programs on these
products

Fit and Proper Criteria

Must be met even if FAs and their representatives
are not required to and don’t make any
recommendation
Recommendations on Structured Deposits

Segregation of Activities
Ensure that clients are not misled into believing that
the returns and risks on structured deposits are
similar to traditional fixed deposits.

Where FA is also a deposit-taking institution, FA has

to ensure marketing and advisory process for
structured deposit is distinct from the process
through which client’s funds are accepted.

Only employees qualified to provide advice on

investment products may market and offer
recommendation of structured deposits
Requirements under the Banking Act (Cap.19)

• Financial adviser and its representatives are reminded to be aware of

the requirements under the Banking Act in particular:
a. The restrictions on deposit-taking business and soliciting of deposits; and
b. (in relation to banks) the restrictions on the opening of a new place of business by
a bank

• A booth or road show location where applications for structured

deposits are received would be considered a new place of business or
a bank branch, for which the relevant bank would have to seek the prior
approval of MAS under Section 12 of the Banking Act (Cap. 19)
Guidelines on Switching of Designated
Investment Products [GUIDELINE NO: FAA-G10]

General Obligations

 Recommendation to a client to switch from an original to a

replacement product should not be detrimental to the client
 When making a recommendation to switch, the representative
must:
 comply with the ‘KYC’, needs analysis, documentation and
record keeping requirements
 disclose of any fee or charge payable when doing any
switching
Disclosure Requirements
 A financial adviser and its representatives should disclose to
a client in writing and draw the attention of the client to any
fee or charge the client would have to bear if the client were
to switch from an original product to a replacement product.
 This is to ensure that the client is able to make informed
decision on the switching recommendation.
Guidelines on Switching of Designated
Investment Products
Fees and charges to be Disadvantage of Switching
disclosed
 May incur transaction costs without
Include any fee associated with gaining any real benefit from the
the: switch;
– Disposal of, or
 The new investment product may
– Reduction in interest in all or part offer a lower level of benefit at a
of the original product higher cost or same cost, or offer
– Incurred for the acquisition of, or the same level of benefit at a
– Increase in interest in all or part of higher cost;
the replacement product.
 May incur penalties for terminating
the existing investment product;
and
 The new investment product may
be less suitable for you. You should
seek the advice of your financial
adviser when in doubt or if you
require further clarification.
Monitoring of Switching of
Designated Investment Products

Client to declare, in writing, whether:

Front-End a) the original product is a different designated
Monitoring investment product from the replacement product
Procedures b) the original product was purchased from other FAs

If he was advised by the representative to do so,

declare:
a) if he was made aware of the costs and possible
disadvantages associated with the switch
b) if he wishes to proceed with the switch even if the
fees, charges, or disadvantages may outweigh the
potential benefits

Representative should also declare if the client is

entitled to any free switching, so that client knows the
options
Monitoring of Switching of
Designated Investment Products
Documentation:
◦ Basis of representative’s recommendation of switch
◦ Supervisor of representative to review the switching
recommendation and indicate in writing whether he agrees
with the recommendation made
◦ If Supervisor disagrees:
- What actions are taken to rectify situation
◦ Supervisor must consider if the switch is appropriate to the
client:
- Did client suffer any penalty for terminating the original product
- Did client incur any transaction cost without gaining any real benefit from
the switch
- whether the replacement product confers a lower level of benefit at a
higher cost or same cost to the client, or the same level of benefit at a
higher cost; and
- whether the replacement product is less suitable for the client
Monitoring of Switching of Designated
Investment Products

A financial adviser should institute controls, processes

and procedures to effectively monitor and track the
Back-End switching of designated investment products, one
Monitoring way is to establish and maintain a register of:

Procedures Track volume of

switches to identify
Check past transactions
representatives with
and records of client for
unusually high volume
each new purchase
of switching
transactions

Put in place procedures Implement any other

for supervisor to review procedures and controls
each switch to identify unusual
recommended by trends in switching
representative transactions
Remuneration Structure

• Any remuneration structure based solely on

the sales volume generated by
representatives may encourage product
pushing and undesirable switching.
• A financial adviser should structure the
remuneration package of its representatives
to uphold their responsibility to provide
good quality professional advice.
Guidelines on Fair Dealing

Guidelines focus on the Board and Senior Management (SM) of

financial institutions to undertake responsibilities in delivering fair
dealing outcomes to customers in the:

Selection Marketing Distribution

…. of investment products and the provision of advice.

Also covers responsibilities for after-sales service and complaints
handling
The 5 Fair Dealing Outcomes

Customers have
confidence that they Customers receive
are dealing with clear, relevant and
1 financial institutions
where fair dealing is
timely information to
make informed
4
central to the financial decisions
corporate culture

Financial institutions
2 offer suitable
products and
services for their Financial institutions
target customers handle customer
segments complaints in an 5
independent,
Financial institutions effective and prompt
3 have competent manner
representatives who
provide quality
advice and
appropriate
recommendations to
customers
The Board Responsibilities

 Chart corporate policy and strategy to

deliver fair dealing outcomes to
customers
 Oversee Senior Management in
implementing corporate policy and
strategy approved by it
 Together with SM, it is accountable for
setting the culture and direction to align
business practices with the fair dealing
outcomes
Measures that can be adopted include:

1. demonstrated commitment by the Board and

SM
2. measuring and monitoring achievement of fair
dealing outcomes
3. training staff and representatives to equip
them with the skills and competencies to
deal with customers fairly
4. performance evaluation and a remuneration
system to incentivise fair dealing conduct
Assessment By The MAS

Guidelines on fair dealing are read with the FAA and FAR,
notices, written directions, codes and other guidelines

Ability or failure to meet Guidelines is used in assessing

the financial institution’s ‘Fit and Proper’ status

Supervisory action or enforcement action will be taken

where failure to meet the Guidelines is related to
obligations under the relevant legislation
Industry and consumers associations play key role
in promoting fair dealing outcomes, through:
Conducting
training for
Educating industry
consumers on representatives
fair dealing
initiatives and
what they can
expect from Aligning codes of
Mystery- practices with fair
financial
Developing case shopping dealing outcomes
institutions
studies and examples exercises,
of best practices customer
surveys

MAS has issued consumer guides and support activities under

the MoneySENSE financial education program to equip
consumers to make informed financial decisions
Outcome 1
Rationale:

Customers rely on FIs for relevant information, quality advice and

appropriate recommendations Board and Senior Management must take
the lead in developing that culture

Monitor the
effectiveness of
the strategy and
policies to
Steps: Communicate to achieve the fair
internal and external dealing outcomes
Align stakeholders that fair
organisational dealing is a priority for
the financial institution
policies and
Devise a clear practices to the
strategy to fair dealing
achieve the fair outcomes
dealing
outcomes
Key Issues For Self-Assessment

Aligning
Devising a clear
executive organisational
strategy to
responsibilities policies and
achieve fair
should be clearly practices to fair
dealing
assigned dealing
outcomes
outcomes

where the financial

Communicating institution has
to internal and Monitoring the fallen short of
external effectiveness of delivering the fair
stakeholders that the strategy and dealing outcomes,
fair dealing is its policies there should be
priority measures drawn up
to address them
Outcome 2
Rationale:

Customers may find it difficult to make appropriate financial decisions

due to their limited knowledge of investment products, and not fully
understanding the risk-reward characteristics of the product

02
Steps: 01
Providing Quality
Advice And
Appropriate
Conducting Recommendations
Product Due
Diligence
Key Issues For Self-Assessment

 Conducting product due diligence on products it intends to

distribute, including the prospectus, pricing statements,
Product Highlights Sheet, fact sheet and marketing materials

 Marketing to target customer segments according to the key

features and risk-reward characteristics of these products, and
the customer profiles and their circumstances
Outcome 3

Rationale:

With the wide array of investment products, customers rely on representatives to

explain and recommend suitable products

Steps:
02 03
01 Aligning
Remuneration
Providing Quality Structures With
Advice And Customers'
Ensuring Appropriate Interest
Recommendations
Competency Of
Representatives
Key Areas to be Addressed

Ensuring competency of representatives through :

 a structured training program in the advisory sales process,
features and risk-reward characteristics of investment products,
and regulatory requirements;
 ongoing professional training;
 training representatives to conduct a proper fact-find and risk
profiling analysis to provide quality advice and appropriate
recommendations
Key Areas to be Addressed

 Supervisors should conduct quality coaching sessions for their

representatives, and thoroughly review the sales conducted by
the representatives.
 FIs to ensure regular compliance checks and reviews of
completed fact-find forms and sales documents
 Remuneration structures should not rely primarily on
commissions or are biased towards rewarding representatives
for recommending certain investment products. It should
encourage representatives to consider the best interests of
customers
Outcome 4
Rationale:
Information must be given before, during and after the advisory and sales
process to help them make informed financial decisions.
After-sales updates on product performance and any material
developments relating to the investments should be presented in a fair
and balanced manner to enable customers in taking steps to protect their
interests.

Steps:

Providing Providing Providing

Clear Relevant Timely
Information Information Information
Key Areas to be Addressed

 Providing clear information to customers in a simple format,

avoiding the use of technical terms.
For non English-speaking customers, appropriate and accurate
translations of the product disclosure documents must be provided
 Providing relevant information, eg key risks, potential upside and
downside of the investment, fees and charges, rights and
obligations of customers, and not giving misleading information
 Providing timely information like semi-annual and annual reports
or updates on material developments affecting investments, and
where to access the bid or redemption prices
Outcome 5

Rationale:

To provide assurance to customers that their concerns and

feedback are handled fairly and professionally, and that
complaints are indicative of areas for improvement

Steps:
Handling
Complaints Providing
Independently Timely
And Information
Effectively
Key Issues to be Addressed:

 Proper formalised processes must be in place to address

complaints of customers fairly and consistently
 Staff should be properly trained to handle complaints which must
be assessed by reviewers who are not involved in providing
financial advisory services.
There must be clear criteria for assessing the merits of each
complaint
 Recurring complaints eg on specific investment products or
representative/s, or customers of a specific profile should be
investigated and rectified
Guidelines on the Remuneration Framework
for Representatives and Supervisors
(‘Balanced Scorecard Framework’),
Reference checks and Pre-Transaction
checks (Guideline No.: FAA-G14)

Purpose of Guidelines

To provide a general guidance on some of

the requirements in Notice No: FAA-N20
like:
 post-transaction checks; and
 classification of infractions by the ISA
unit

447
Guidelines on the Remuneration Framework for
Representatives and Supervisors (‘Balanced
Scorecard Framework’), Reference checks and Pre-
Transaction checks (Guideline No.: FAA-G14)

To set out the measures to be applied to all

existing and newly recruited representatives
who have been assigned with a balanced
scorecard grade of ‘E’, and supervisors with a
grade of ‘Unsatisfactory’.

To set out measures on obtaining and sharing of

information on the representatives’ and
supervisors’ balanced scorecard grades during
reference checks

4 To set out the Authority’s expectation for FAs to

conduct pre-transaction checks to minimise the
impact of the balanced scorecard framework on
representatives and supervisors
Adoption of Higher Standards By FAs

FAs may set a higher standard than the minimum

requirements for the Balanced Scorecard Framework
under FAA-N20
If an FA adopts a higher standard, this cannot be
attributed to the Authority
Guidance on Post-Transaction
Checks Carried Out by ISA Unit

The ISA Unit is required to carry out and complete post-

transaction checks on sampled transactions in every
calendar quarter.
The Guidelines set out the minimum standards that is
expected of the ISA, with regard to:

Guidance for Guidance for

documentation client surveys
reviews
Documentation Review Client Survey
 May incorporate or modify  May incorporate or modify any other
any other assessment additional questions, without changing
criteria, without changing the substance of each question
the substance of each
criterion
 Should be conducted on  Should also be conducted on each of
each sampled transaction the sampled transaction in
to assess any potential documentation reviews, so as to better
cases of infraction uncover any undetected infractions,
and assessment of potential cases of
infraction
 Via :
» phone-calls, face-to-face (closed:
after 3 unsuccessful call attempts); or
» in written surveys (closed: if no
response within 1 month); or
» in electronic surveys
(closed: if no response within 2 weeks)
Classification of Infraction
Every infraction must be classified as either:

CATEGORY 1 CATEGORY 2
(non-sales Key
Performance Indicators
(Annex 3))
FA should also review if appropriate disciplinary action should be
taken against the representatives who have committed infractions, or
the supervisor of such representatives, besides the remuneration
being affected.
Guidance for documentation reviews

Information collected Fact-find was carried

by representative was out but representative
insufficient to enable had no reasonable basis
him to have a good for his recommendation
understanding of the of the investment
client’s profile, risk product
appetite and financial

KPI 2
KPIs 1 &2

objectives, and the

investment product
recommended was not
suitable for the client.
Guidance for documentation reviews

Representative Representative Representative

recommended provided was
an investment misleading unprofessional
product but statements and unethical in
didn’t disclose or leading to the the manner he

KPI 4
KPI 3

KPIs 3&4
had omitted to client believing provided
provide that the financial
information on investment advisory
key features and product was services
risks, and how suitable for him.
the investment But it was
product works. If actually
the client had unsuitable and
known of the didn’t meet his
information, he particular needs
wouldn’t have
bought it.
Representatives Assigned a Balanced Scorecard Grade of ‘E’ and
Supervisors Assigned A Grade of ‘Unsatisfactory’ under the Balanced
Scorecard Framework

Grade‘E’ ISA Unit must do

representative independent post-
transaction check
on every
His supervisor
transaction, for at
must
least 3 months.
accompany
him during the
advisory and
sales process ‘E’ representative can’t
for at least 5 perform supervisory or
closed cases management role for at
(Refer to Page 450)
least 1 year.
A higher tier supervisor will accompany
the ‘E’ representative during the advisory
and sales process for the min. 5 closed
cases
Direct supervisor of a ‘E’
representative with If every supervisor in a higher tier is
grading of assigned a balanced scorecard
grade of “Unsatisfactory”
‘Unsatisfactory’
• Designate a person who is
Review if the supervisor’s independent and suitably
oversight of the representatives
under his supervision is qualified to be responsible
adequate; and for conducting the
supervisory role
Consider reducing the number • Submit a remedial plan to
of representatives under his MAS on steps to improve
supervision, OR Impose a the performance of the
moratorium on his recruitment team where the
of new representatives
representative and
supervisor are from.
(Refer to Page 451)
NOTE
Any supervisor with ‘Unsatisfactory’ grading for 2
consecutive calendar quarters, can’t perform any
managerial or supervisory role for at least 1 year from
date of second grading.

The CEO of the FA is responsible for the oversight of

close supervision of every ‘E’ representative and
‘Unsatisfactory’ supervisor. He must assess their
fitness and propriety, and if necessary, take
appropriate disciplinary action
Reference Checks on
Representatives and Supervisors

An FA2 (‘second-mentioned adviser’) recruiting a

representative or supervisor who was previously with
another FA1 (‘first-mentioned adviser’) in that capacity:
 FA2 should request for the last 4 balanced scorecard
grades assigned by the previous principals (FA1)
within the last 10 years
 FA1 must disclose when it receives such requests for
reference checks
Recruitment Of Representatives Assigned A
Balanced Scorecard Grade Of “E” And Supervisors
Assigned A Balanced Scorecard Grade Of
“Unsatisfactory” Under The Balanced Scorecard
Framework

If FA intends to recruit or recruits an individual who has been assigned

a balanced scorecard grade of “E” in the most recent balanced
scorecard assessment performed by his previous principal, the FA
should observe Guidelines in:
“Representatives Assigned a Balanced Scorecard Grade of ‘E’
and Supervisors Assigned A Grade of ‘Unsatisfactory’ under the
Balanced Scorecard Framework”

A financial adviser should not recruit any individual with a balanced

scorecard grade of “Unsatisfactory” in the final calendar quarter of his
tenure with his previous principal, as a supervisor
Pre-transaction checks by
supervisor should include:
If representative has made a
Review
Documentation

Client Call-back
Fact-find, needs recommendation to a selected
analysis and basis of client*
recommendation If a selected representative** has
made the recommendation,
Call-backs should be made as
soon as practical, but not later
than the end of the next quarter
after the assignment of the
grade of ‘B’ or worse.
Who is a ‘SELECTED CLIENT’?
If he meets any two of the following:

≥ 62 years old
(Refer to Page 418)

below GCE
‘O’ or ‘N’ level
certification,
or academic Is not proficient
equivalent in spoken &
qualifications written English
Who is a ‘SELECTED REPRESENTATIVE’?
He’s one who has been assigned a grade of ‘B’ or
worse for 2 consecutive quarters immediately
preceding the measurement quarter
Pre-transaction Checks

For pre-transaction checks, an FA may also:

I. Engage a non-sales staff or a third-party provider; or

II. Implement systems (system-based method) to check whether
the recommended product is suitable for the client,

Provided the non-sales staff, third-party provider or the system-

based method is as effective as that performed by a supervisor.

453
Pre-transaction Checks
About pre-transaction check:
If checks can’t be completed Should be completed within the
before the effective date of the free-look or cancellation period of
transaction of the investment the investment product.
product.
Where a recommendation is of an Checks must be completed within
investment product that is time- 5 business days from the effective
sensitive, and doesn’t have a free- date of the transaction.
look or cancellation period.

Where the investment product is Client can modify or cancel his

found to be unsuitable. transaction, and doesn’t have to
bear an difference in value of the
investment product, or fees and
charges.
453
NOTE
FAs must ensure all infractions be rectified.
Records of the following, in relation to the balanced
scorecard framework must be kept for at least 5 years:
 processes and methods undertaken,
 every assessment and determination of pre-
transaction checks made
THE END

FINISH
CMFAS Module 5: Rules &
Regulations for Financial
Advisory Services
Chapter 11: MAS Guidelines – Part III
[Guideline Nos: FAA-G13; FAA-G15; FAA-G16; CMG-G02 & FSG-G02]

5th Edition April

The information is provided on the basis that all

You are highly advised to read the Study Guide

provided by the Singapore College of
Insurance for your exam preparation and do not
solely depend on this e-learning module as this
is only a supplement to aid in your exam
preparation.

You are not allowed to print and download

FAA-G13 FAA-G15

5
Guidelines
FAA-G16

CMG-G02

• FAA-G13, G15, G16 and FSG-G2 are issued pursuant to Section 64 of the Financial Advisers Act
(Cap. 110)
• FSG-G02 is also issued pursuant to Section 321 of the Securities and Futures Act (Cap. 289)
Learning Objectives

Understand the requirements of the following Guidelines

and who they apply to:

 Guidelines On Addressing Conflicts Of Interest Arising

From Issuing Or Promulgating Research Analyses Or
Research Reports [Guideline No : FAA-G13]
 Guidelines On The Online Distribution Of Life Policies
With No Advice [Guideline No: FAA-G15]
 Guidelines On Application For Approval Of Arrangements
Under Regulation 32CB Of The Financial Advisers
Regulation (RG2) [Guidelines No: FAA-G16]
 Guidelines On Provision Of Digital Advisory Services
[Guideline No: CMG-G02]
 Guidelines On Standards Of Conduct For Marketing And
Distribution Activities By Financial Institutions [Guidelines
No: FSG-G02]
ADDRESSING CONFLICTS OF
INTEREST ARISING FROM ISSUING
OR PROMULGATING RESEARCH
ANALYSES OR RESEARCH REPORT

[GUIDELINE NO: FAA-G13]

Last Revised: 8 Oct 2018

Applies to all:
 Licensed financial advisers
 Exempt financial advisers
 And their representatives
ADDRESSING CONFLICT OF INTEREST ARISING
FROM ISSUING OR PROMULGATING RESEARCH
ANALYSES OR REASEARCH REPORTS [FAA-G13]
Purpose of the Guideline:
 Applicable to any financial adviser who provides the financial
advisory service of advising others, whether in electronic, print or
other form concerning any investment product
 Set out examples of potential conflicts of interest that may arise
from issuing or promulgating research reports that contain opinions
or recommendations about clearly identifiable investment
products. Promulgate: promote or make widely known

 Set out standards and practices expected of financial advisers in

dealing with such conflicts of interest.
 Please refer to Appendix 11A (page 471) for Guideline No: FAA-G13

*Note that Appendices are testable 468

ADDRESSING CONFLICT OF INTEREST ARISING
FROM ISSUING OR PROMULGATING RESEARCH
ANALYSES OR REASEARCH REPORTS [FAA-G13]
The examples, standards and practices expected of a Financial
Institution set out in the Guidelines cover the following main areas:

1. Internal Policies on Research Activities

2. Trading Activities and Financial Interests of Financial Institutions

and Analysts

3. Reporting Lines and Compensation of Analysts

4. Influence from Business Relationship of the Financial Institution

and Other External Parties

5. Standards of Disclosure

6. Maintenance of Proper Records

ADDRESSING CONFLICT OF INTEREST ARISING
FROM ISSUING OR PROMULGATING RESEARCH
ANALYSES OR REASEARCH REPORTS [FAA-G13]
Appendix 11A 1. Internal Policies on Research Activities

 Have in place appropriate mechanisms to ensure the independence

of its FA Service from its other business units
 Establish and implement written policies to effectively manage
conflicts of interest
 Internal conflict management policy should identify sources of
conflicts of interest and address the effects of these conflicts
 The conflict management policies are to be approved and
endorsed by senior management

*Internal policies should address conflicts arising from:

(i) Trading activities and financial interests of the Financial Institution and its
analysts and
(ii) (ii) Reporting lines and compensation of representatives, as well as the
standards of disclosure.
ADDRESSING CONFLICT OF INTEREST ARISING
FROM ISSUING OR PROMULGATING RESEARCH
ANALYSES OR REASEARCH REPORTS [FAA-G13]
2. Trading Activities and Financial Interests of
Appendix 11A
Financial Institutions and Analysts

 Have an adequate basis,

Special supported include
circumstances by research, forwhere
situations making a research
significant news
recommendation.
is publicly announced that would change the research
recommendation, or for personal reasons relating to financial
 Establish, implement and enforce policies and procedures for personal
hardship, the analyst is required to liquidate a position
trading by its analysts, as well as other staff who have access to non-
public information
 Proper approval and documentation for permissions granted for special
circumstances* where an analyst trades for himself in a manner that is
contrary to his outstanding research recommendation
 Proper segregation policies and mechanisms between the FA Service
and other business functions
 Have a policy that mandates a “blackout period” to ensure that analysts
and other staff do not circumvent any trading restriction
ADDRESSING CONFLICT OF INTEREST ARISING
FROM ISSUING OR PROMULGATING RESEARCH
ANALYSES OR REASEARCH REPORTS [FAA-G13]
Appendix 11A 3. Reporting Lines and Compensation of Analysts

 The reporting lines and remuneration practices within the Financial

Institution should be structured to ensure research objectivity by
eliminating / effectively manage the conflict of interest
 An analyst’s remuneration should be structured in a way to avoid
any bias in his research analyses and recommendations. In
particularly, the bonus, salary or other form of compensation
should not be based on any sales trading, dealing or finance
advisory transaction
ADDRESSING CONFLICT OF INTEREST ARISING
FROM ISSUING OR PROMULGATING RESEARCH
ANALYSES OR REASEARCH REPORTS [FAA-G13]
4. Influence from Business Relationship of the
Appendix 11A
Financial Institution and Other External Parties

 The Financial Institution SHOULD NOT offer favourable research

coverage as consideration for business or compensation
 The Financial Institution should put in place procedures to manage
or eliminate the undue influence of issuers, institutional investors
and other external parties on its analysts
 Have clear defined procedures for dealing with situations where
information and system access barriers have been crossed and
maintain proper records of such occurrences
ADDRESSING CONFLICT OF INTEREST ARISING
FROM ISSUING OR PROMULGATING RESEARCH
ANALYSES OR REASEARCH REPORTS [FAA-G13]
Appendix 11A 5. Standards of Disclosure
 Any material interest in the subject of the
 The information provided should
reportbe
or complete, concise and specific
recommendation
such that investors can understand the actual or potential conflicts of
 If it or its connected persons have a financial
interest interest or make a market in the investment
 productsrecommendations
The FI should disseminate research of an issuer coveredto
within the
all interested
research report
parties simultaneously to ensure that no party would receive, or be
deemed to receive, preferential
 Whenservice
its staff or connected persons serve on
the board or in trustee positions of an issuer
 The FI and its analysts shouldcovered
disclose anythe
within compensation
research reportor benefit
received by them in connection with the production of a research report
 Any corporate finance advisory relationship
 The Financial Institution and between
its analysts should
the FI make disclosure
or its connected persons,on
and
information that may create a issuers of theconflict
potential investment products being
of interest
covered in any research analysis or report over
Examples of such the past 12 months
information include:
ADDRESSING CONFLICT OF INTEREST ARISING
FROM ISSUING OR PROMULGATING RESEARCH
ANALYSES OR REASEARCH REPORTS [FAA-G13]
Appendix 11A 6. Maintenance of Proper Records

 A Financial institution should maintain proper records of the bases

and supporting documents of its analysts’ research recommendation
for a period of not less than 5 years from the date of publication of
the research recommendation
GUIDELINES ON THE ONLINE
DISTRIBUTION OF LIFE
POLICIES WITH NO ADVICE
[GUIDELINE NO: FAA-G15]
Effective Date: 31 Mar 2017

Applies to all:
 Licensed financial advisers
 Exempt financial advisers
 And their representatives
GUIDELINES ON THE ONLINE DISTRIBUTION OF
LIFE POLICIES WITH NO ADVICE [FAA-G15]
Purpose of the Guideline:
 Set out the safeguards that FAs should put in place when
distributing life policies online without advice
1. Offer of Equivalent Direct Purchase Insurance Products (DPI)

2. Provision of Key Information

3. Provision of Tools and Considerations for Other Life Policies

4. Handling of Queries, Complaints and Claims

5. Implementation of Internal Controls, Policies and Procedures

 Please refer to Appendix 11B (page 477) for Guideline No: FAA-G15

*Note that Appendices are testable 468

GUIDELINES ON THE ONLINE DISTRIBUTION OF
LIFE POLICIES WITH NO ADVICE [FAA-G15]

1. Offer of Equivalent Direct Purchase

Appendix 11B
Insurance Products (DPI)

 Before a financial adviser offers a particular life insurer’s specific

life policy online, it should first determine if that insurer offers an
equivalent DPI.
 If the financial adviser has an online platform to distribute life
policies, it should also offer the equivalent DPI online to its clients
GUIDELINES ON THE ONLINE DISTRIBUTION OF
LIFE POLICIES WITH NO ADVICE [FAA-G15] Life Policy (including
bundled product):
• cover page,
• product summary,
Appendix 11B 2. Provision of Key Information • policy illustration,
• bundled product
A financial adviser should put in place the following safeguards at thedocument
disclosure
• product
point of a client’s application for the purchase of a life policy via thehighlights
sheet
online direct channel:
a) Provision of product information as set out in Para 37(b) of FAA-
N16 and the full policy wordings of the relevant life policy
b) Acknowledgement of conditional acceptance
• A life policy is not a savings account or deposit
c) Incorporation of Prominent Statement(s)
• Client may not get back the premium paid (partially or in full) if the client terminates or surrenders
the policy early
• Some benefits of a life policy are not guaranteed (only if applicable)
• There is a 14-day free look period
• The client can request the financial adviser to explain the product features
• The client may wish to separately seek advice on the suitability of the life policy
• In the event that the client chooses not to seek advice on the suitability, the client should consider if
the life policy is suitable for his financial circumstances and needs
GUIDELINES ON THE ONLINE DISTRIBUTION OF
LIFE POLICIES WITH NO ADVICE [FAA-G15]

3. Provision of Tools and Considerations for

Appendix 11B
Other Life Policies

A financial advisers should encourage the clients to be aware of the

following before buying a life policy via the online direct channel:
 Calculation of the amount of life insurance coverage that the client
will need
 Check if the premium payable for the life policy is affordable
according to client’s income and expenditure
 Consider the types of DPI and other types of life policies available, to
understand if the life policy is suitable for the client
GUIDELINES ON THE ONLINE DISTRIBUTION OF
LIFE POLICIES WITH NO ADVICE [FAA-G15]

Appendix 11B 4. Handling of Queries, Complaints and Claims

 Set up appropriate avenues to address general queries from its

clients relating to the life policies offered on its online direct
channel, including but not limited to telephone or email helplines
 Information such as contact details, information on the claims
process and process for filing complaints should also be provided
on its online direct channel
GUIDELINES ON THE ONLINE DISTRIBUTION OF
LIFE POLICIES WITH NO ADVICE [FAA-G15]

5. Implementation of Internal Controls,

Appendix 11B
Policies and Procedures

specific risk associated

money laundering and with non-face-to-face
terrorism financing risks business relation with a
client
FAs are to ensure
adequate policies,
procedures and
technological risks: controls to
 Establish sound and robust address / Other Risks
technology risk mitigate: E.g. have a business continuity
management framework plan to minimize system
 Strengthen system security, downtime or component
reliability, resiliency and failures to the online direct
recoverability channel
 Deploy strong
authentication to protect
customer data
GUIDELINES ON APPLICATION FOR
APPROVAL OF ARRANGEMENTS UNDER
REGULATION 32CB OF THE FINANCIAL
ADVISERS REGULATION (RG2)

[GUIDELINE NO: FAA-G16]

Effective Date: 1 Jan 2019
GUIDELINES ON APPLICATION FOR APPORVAL OF
ARRANGEMENTS UNDER REGULATION 32CB OF
THE FAR (RG2) [FAA-G16]
According to Regulation 32CB of the FAR:
A relevant entity is exempt under section 23(1)(f) of the Act from holding
a financial adviser’s licence for providing a financial advisory service in
respect of any ASEAN capital markets products when the service is
provided under an approved arrangements.
ACMF:
ASEAN Capital Market Forum
Purpose of the Guideline:
 Set out MAS’ assessment criteria and application procedures for such
approval of arrangements and the MAS’ supervisory expectation in
relation to approved arrangement
 Please refer to Appendix 11C (page 482) for Guideline No: FAA-G16

*Note that Appendices are testable

Please go through the definitions on page 482 468

GUIDELINES ON APPLICATION FOR APPORVAL OF
ARRANGEMENTS UNDER REGULATION 32CB OF
THE FAR (RG2) [FAA-G16]
Appendix 11C
Assessment Criteria of Relevant Entity:
The Authority will consider if the relevant entity satisfies certain
criteria but not limited to the following criteria:
 Whether it possess a minimum of five (05) years of corporate track
record in the specific financial advisory services
 Whether it is financially sound and has discharge its function in an
efficient, honest and fair manner during the five-year period
 Whether it is licensed or otherwise authorised to conduct the
relevant financial advisory services in a Specified ASEAN
participating country
The list of criteria above is non-exhaustive, and the Authority
reserves the right to refuse to grant approval as the Authority 485
deems fit.
GUIDELINES ON APPLICATION FOR APPORVAL OF
ARRANGEMENTS UNDER REGULATION 32CB OF
THE FAR (RG2) [FAA-G16]
Appendix 11C Valid for 2 Years
ACMF Pass: An arrangement between a relevant entity and a
Singapore Entity approved by the Authority under Regulation 32CB

Responsibilities of Singapore Entity

 Ensures that all Recognised Representative of the ACMF Participant
meet the relevant criteria (e.g. at least 21 years old, fit & proper)
 Ensure the Recognised Representatives only carry out activities in
connection with the arrangement approved by the Authority, and not
other activities such as soliciting for sales of any Specified ASEAN capital
markets products or providing advice to investors
 Ensure sufficient controls when the Recognised Representatives provide
service to a retail investor. (E.g. ensure that the Recognised Representative is
accompanied at all times by an authorized employee or representative of the
Singapore Entity)
GUIDELINES ON APPLICATION FOR APPORVAL OF
ARRANGEMENTS UNDER REGULATION 32CB OF
THE FAR (RG2) [FAA-G16]
Appendix 11C

Responsibilities of Singapore Entity

The Singapore Entity is also subjected to conditions and restrictions
imposed under the approval granted by the Authority, including the
following:
 Maintain a register in respect of every Recognised Representative
 Ensure that proper documentation is relation to approved arrangement
 Implement policies and procedures to provide for the oversight of the
conduct of the Recognised Representatives, handling complaints and
resolve disputes
GUIDELINES ON APPLICATION FOR APPORVAL OF
ARRANGEMENTS UNDER REGULATION 32CB OF
THE FAR (RG2) [FAA-G16] Hosting Platform Operator:
Any person who will be making
Appendix 11C
available the research reports

Conditions and restrictions imposed on a Cross-Border Publication of

Research Report Arrangement include:
 The publication is issued or promulgated by the ACMF Participant to the same
classes of investors in Singapore as it is in the Specified ASEAN Participant
country
 Consent has been obtained from the ACMF Participants for the Hosting Platform
Operator to make available the publication to investors in Singapore
 The publication is made available in its original form with no changes
 Disclaimer to notify investors in Singapore that the publication is issued or
promulgated by the ACMF Participant and not the Hosting Platform Operator
 Hosting Platform Operator does not endorse or otherwise comment on the
publication
 Hosting Platform Operator does not provide a financial advisory service
GUIDELINES ON PROVISION OF
DIGITAL ADVISORY SERVICES
[GUIDELINE NO: CMG-G02]
Effective Date: 8 Oct 2018

Applies to all:
 Financial institutions
offering digital advisory
services
GUIDELINES ON PROVISION OF DIGITAL
ADVISORY SERVICES [CMG-G02]
Purpose of Guideline:
 Provide guidance on the regulatory requirements in relation to the
provision of digital advisory services by setting out the following
requirements:
Licensing Requirements and Exemptions

Governance and Supervision of Algorithms

Technology Risk Management

Prevention of Money Laundering & Countering the Financing of Terrorism

Disclosure of Pertinent Information

Suitability of Advice
 Please refer to Appendix 11D (page 490) for Guideline No: CMG-G02

*Note that Appendices are testable

GUIDELINES ON PROVISION OF DIGITAL
ADVISORY SERVICES [CMG-G02]
Appendix 11D Licensing Requirements and Exemptions

 The same licensing framework embodied in the SFA and FAA is

applicable to digital advisers
 For digital advisers operating as FAs, the licensing exemption is
spelt out in Paragraph 16 – 22 of CMG-G02
 Digital Advisers operating as fund managers have to maintain the
track record and minimum Assets Under Management (AUM)
requirements*
 Five (05) year corporate track record; and
 Minimum Assets Under Management (AUM) of S$1 billion

*Digital Advisers who do not meet the above mentioned requirement can still
apply to be licensed for fund management if they are able to meet additional
safeguards spelt out in paragraph 23
GUIDELINES ON PROVISION OF DIGITAL
ADVISORY SERVICES [CMG-G02]
Appendix 11D Governance and Supervision of Algorithms

 The Board and Senior Management need to maintain effective

oversight and governance of the client-facing tool and ensure
sufficient resources to monitor and supervise the performance of
algorithms
 The digital adviser should be adequately staffed with people who
have the competency and expertise
 Adequate training should be provided to all staff who use the client-
facing tool
 The Board and Senior Management should put in place systems
and processes to ensure a sound risk management culture and
environment, as well as compliance with the relevant rules and
regulations
Ultimately Responsible and
Accountable
GUIDELINES ON PROVISION OF DIGITAL
ADVISORY SERVICES [CMG-G02]
Appendix 11D Technology Risk Management

 [Existing Obligation] To implement internal policies and

procedures to address technology risks
 Digital advisers have to meet the requirement set out in FAA
Notice on Technology Risk Management (FAA-N18) and SFA
Notice on Technology Risk Management (CMG-NO2)
 Digital advisers should also perform a gap analysis to ensure all
gaps are adequately mitigated prior to the launch of client-facing
tool
GUIDELINES ON PROVISION OF DIGITAL
ADVISORY SERVICES [CMG-G02]
Prevention of Money Laundering & Countering
Appendix 11D
the Financing of Terrorism

 Digital advisers are required to have in place adequate policies,

procedures and controls to mitigate money laundering and
terrorism financing risk, as set out in the FAA Notice on Prevention
of Money Laundering and Countering the Financing of Terrorism
(FAA-N06) and SFA Notice to Capital Markets Intermediaries on
Prevention of Money Laundering and Countering the Financing of
Terrorism (SFA04-N02)
 Given the online business model of digital advisers, there must be
steps taken to address the specific risks associated with Non-Face-
To-Face (NFTF) business relations with a client
GUIDELINES ON PROVISION OF DIGITAL
ADVISORY SERVICES [CMG-G02]
Appendix 11D Disclosure of Pertinent Information

 Provide sufficient information to allow clients make informed investment

decisions
 Minimally disclose in writing, the following information relating to
algorithms
 Assumptions, limitations and risks of the algorithms
 Circumstances under which the digital advisers may override the
algorithms or temporarily halt the digital advisory service
 Any material adjustments to the algorithms
 Disclose in writing any actual or potential conflict of interest arising from
any connection to or association with any product provider
 Furnish a risk warning statement to their clients at the point of account
opening when advising them on overseas-listed investment products

the level of protection afforded to clients may

differ for overseas-listed investment products
GUIDELINES ON PROVISION OF DIGITAL
ADVISORY SERVICES [CMG-G02] Recall FAA-N16 on
Recommendations on
Investment Products,
Appendix 11D Suitability of Advice covered in Chapter 4

 With reference to Section 27 of the FAA, digital advisers operating as Financial

Advisers must have a reasonable basis for recommending any investment product
to a person who may reasonable be expected to rely on the recommendation
 Fully-automated digital advisers are not required to collect full information under
Paragraph 11 of FAA-N16 when ALL of the following conditions are met:
 When the advice is fully-automated
 There are in-built “knock-out” to effectively identify and eliminate unsuitable
clients
 Controls in place to identify and follow up on inconsistent responses
provided by clients
 Risk disclosure statement to alert clients that the recommendation made
does not take into consideration their financial circumstances
 Advice is limited to CIS that are in substance EIPs
 Customer Knowledge Assessment is required to be conducted by digital advisers
regardless of whether is client is self-directed or not.
GUIDELINES ON PROVISION OF DIGITAL
ADVISORY SERVICES [CMG-G02]
Appendix 11D Other Requirements

Balanced Scorecard (BSC) Framework

For digital advisers that operate without any representatives that
provide recommendation or advice directly to clients, they are not
subjected to the BSC requirements
Advertisements and Marketing
Digital advisers have to comply with requirements set out under
Regulations 46 to 46AD of the SF(LCB)R and Regulations 22 to 22D of
the FAR. The advertisements are not to be false and misleading and the
disclosures should be fair and balanced, clear and eligible.
If past performance is disclosed, digital advisers should highlight visibly
in writing to clients that past performances is not necessarily indicative
of future performances.
GUIDELINES ON STANDARDS OF
CONDUCT FOR MARKETING AND
DISTRIBUTION ACTIVITIES BY
FINANCIAL INSTITUTIONS
[GUIDELINE NO: FSG-G02]
Effective Date: 23 Dec 2016

Applies to all:
 Financial institutions
conducting marketing and
distribution activities at
retailers and public places
GUIDELINES ON STANDARDS OF CONDUCT FOR
MARKETING AND DISTRIBUTION ACTIVITIES BY
FINANCIAL INSTITUTIONS [FSG-G02]
Marketing and distribution arrangements such as roadshows and tie-
ups with retailers, if not properly managed, may give rise to:
a) Harassment of customers
b) Unconducive environment for the purchase of financial products
c) Confusion over the identities and roles of the financial institution and its
representatives
d) Enticement of customers to purchase unsuitable products
e) Mishandling of cash and cheques collected

The Guidelines set out Safeguards, aimed o address the market

conduct risks, to be put in place and adhered to when FIs market and
sell financial products and services to customers.

 Please refer to Appendix 11E (page 502) for Guideline No: FSG-G02

*Note that Appendices are testable

GUIDELINES ON STANDARDS OF CONDUCT FOR
MARKETING AND DISTRIBUTION ACTIVITIES BY
FINANCIAL INSTITUTIONS [FSG-G02]
Board and Senior Management Responsibilities

 MAS hold the Board and senior management accountable for

ensuring that their FI’s business conduct practices are in line with
the objective of the Guidelines
 The Board and senior management should ensure the safeguards in
the following areas are incorporated into the FI’s policies, systems
and processes
 Exercising adequate oversight of marketing and distribution
activities
 Conducting marketing, sales and advisory activities in a
professional manner
 Providing a suitable environment for a proper sales and
advisory session
GUIDELINES ON STANDARDS OF CONDUCT FOR
MARKETING AND DISTRIBUTION ACTIVITIES BY
FINANCIAL INSTITUTIONS [FSG-G02]
Appendix 11E Annex 1

Exercising adequate oversight of marketing and distribution activities

No. SAFEGUARD
Conduct call-backs or surveys for all customers prospected at
retailers and public places before or within the free-look or
cooling-off period, to ensure that customers have understood
1
their purchase closed at such locations. (To be implemented on
life insurance policies, accident and health policies, and collective
investment schemes)
Conduct regular mystery shopping and site visits to monitor and
ensure that the marketing, sales and advisory practices of
representatives at retailers and public places are conducted in
2
line with their internal standards and procedures as well as the
Guidelines on Standards of Conduct for Marketing and
Distribution Activities.
GUIDELINES ON STANDARDS OF CONDUCT FOR
MARKETING AND DISTRIBUTION ACTIVITIES BY
FINANCIAL INSTITUTIONS [FSG-G02]
Appendix 11E Annex 1

Exercising adequate oversight of marketing and distribution activities

No. SAFEGUARD
Separately track and monitor complaints arising from FI’s
marketing, sales and advisory activities at retailers and public
3
places. Complaints statistics should also be reported to senior
management on a regular basis.

Maintain a register containing information on their marketing and

4
distribution arrangements at retailers and public places.
GUIDELINES ON STANDARDS OF CONDUCT FOR
MARKETING AND DISTRIBUTION ACTIVITIES BY
FINANCIAL INSTITUTIONS [FSG-G02]
Appendix 11E Annex 1

Conducting marketing, sales and advisory activities in a professional manner

No. SAFEGUARD
FIs and their representatives should conduct themselves in a
professional manner at all times and must not cause annoyance
5 by being unreasonably persistent or by placing undue pressure
on members of the public to purchase any financial product or
service.
Ensure that the representatives clearly disclose:
1) their identities and the financial institution they represent
when they prospect for customers.
6
2) disclose and explain to customers the relationship between
the FI and the third-party product provider (if applicable).
3) the tie-up between the FI and the retailer, if any.
GUIDELINES ON STANDARDS OF CONDUCT FOR
MARKETING AND DISTRIBUTION ACTIVITIES BY
FINANCIAL INSTITUTIONS [FSG-G02]
Appendix 11E Annex 1

Conducting marketing, sales and advisory activities in a professional manner

No. SAFEGUARD
Ensure that the representatives undergo training on proper sales
7
and advisory conduct
Ensure that the representatives who conduct marketing and
8 distribution activities at retailers and public places have a good
compliance record
Ensure that the remuneration and incentives paid to the
9 representatives do not lead to aggressive sales tactics and other
inappropriate conduct
Ensure that any gift offered to customers does not unduly
10 influence the decisions of customers to purchase any financial
product or service
GUIDELINES ON STANDARDS OF CONDUCT FOR
MARKETING AND DISTRIBUTION ACTIVITIES BY
FINANCIAL INSTITUTIONS [FSG-G02]
Appendix 11E Annex 1

Providing a suitable environment for a proper sales and advisory session

No. SAFEGUARD

Ensure that the venue for their marketing and distribution

11 activities are adequate and conducive for representatives to
conduct a proper sales and advisory session.

Have adequate controls in place to ensure that payments

12 collected from customers at retailers and public places are
properly handled and securely kept.
THE END

FINISH
CMFAS Module 5: Rules &
Regulations for Financial
Advisory Services
Chapter 12: Revised Code On Collective
Investment Scheme

5th Edition April

The information is provided on the basis that all

You are highly advised to read the Study Guide

provided by the Singapore College of
Insurance for your exam preparation and do not
solely depend on this e-learning module as this
is only a supplement to aid in your exam
preparation.

You are not allowed to print and download

The Manager The Scheme Accounts and

Reports

Dealing and Breaches Recognised Schemes and

Valuations Authorised Schemes Which
Feed Into An Underlying Scheme

Core Investment Hedge Funds Capital

Requirement Guaranteed Fund
Key Learning Objectives

 Explain the requirements found in Code on CIS regarding:

 The Manager
 The Scheme
 Accounts & Reports
 Dealing & Valuation
 Breaches
 Schemes that feeds into another Schemes
 Core Investment Requirement
 Hedge Funds
 Capital Guaranteed Funds
Key Changes Introduced

• Revised Code on Collective Investment aims:

– to provide greater clarity, and
– to increase the flexibility for fund managers in managing
their funds
– to enhance safeguards for retail investors
• MAS will only recognize a foreign scheme if it is
satisfied that the scheme is subject to investment
guidelines which are substantially similar to those as
set out in the revised Code.

520
The Revised Code on Collective Investment
Schemes (effective from 1 Oct, 2011)

Key Changes Specifics

Strengthening core  Lists permissible investments
investment requirements  Strengthens safeguards on the
for fund use of financial derivatives and
counterparty requirements
 Enhances guidelines on securities
lending activities
 Enhances requirements for funds
investing in structured
instruments

520
The Revised Code on Collective Investment
Schemes (effective from 1 Oct, 2011)

Key Changes Specifics

Introducing new guidelines  Establishing new guidelines for
for specialised fund funds which track on index
categories  Introducing the concept of
weighted portfolio maturities for
money market funds

521
The Revised Code on Collective Investment Schemes
(effective from 1 Oct, 2011)

Key Changes Specifics

Other safeguards to  Standardising the methods used to
enhance investor calculate performance fee
protection  Introducing principles on the naming
of funds
 Prohibiting the use of simulated past
performance data for disclosure of
performance figures
The Manager
Functions and Responsibilities (Chapter 3 of Code) 522

Records Guidance:
retention • Transactions consistent approach with scheme’s
objective and approach
Best • At one arm’s length:
Execution  Objective and fair manner
• With related corporations:
Significant  Not invest, lend money or buy real estate assets
Influence with securities from own or related firms

Transactions
Use of Financial Use of Credit
not invest the monies of the
Derivatives Arrangements for Rating
scheme in the manager's
own securities or securities-
Not to act as the participants to Develop own and
counterparty of an
based derivative contracts,
OTC financial receive accounts, based on rating
or those of any of its related
corporations unless the derivative that is reports and scale that is
securities are constituents of invested into by statements globally
the scheme’s reference the scheme comparable
benchmark, which is
constructed by an
independent party
The Manager
Operational Obligations 524

Cannot receive Payment of

cash & soft Redemption Exercise of Voting
dollar Proceeds: Rights
Must pay out money Ensure that there are
Cannot charge to the scheme’s no conflict of interest
on CPF failed participant in the
trade defined days

Preparation of
Notification of significant changes: accounts and reports:
• Any significant changes to the scheme On semi-annual and
must inform authority and existing annual basis
participants no later than 1 month
• Changes of investment objective,
remuneration/fee & charges,
amendment to trust deed, Modifications to the
appointment of manager trust deed
Operational Obligations

Modifications to the Trust Deed

The manager should obtain an extraordinary resolution of
participants for any modification, unless trustee certifies that:

modification does not materially prejudice the interests of the

participants, and the manager is not released from any
responsibility to the participants to any material extent; or

any change to the scheme, or

rights or obligations to the the modification is made to
participants, which require a remove obsolete provisions or
modification to the trust deed is to correct manifest errors
necessary for compliance; or
Delegation
Where a scheme's NAV is sub-managed, the manager should
ensure that the scheme is invested in accordance with the Code,
and that there are:

Adequate Procedures Controls More than 10% of NAV

• To monitor the • To ensure • Sub-managed

conduct compliance with abroad, manager and
the trust deed, related corporations
• Ensure that the should be managing ≥
function delegated laws & regulations S$500m in Singapore
or outsourced is • Sub-managed abroad
performed in a by another manager
proper and • MAS will consider if is
efficient manner reputable and
supervised by an
acceptable financial
supervisory authority

526
Payments

• No payment should be made from the scheme if it is

unfair to, or materially prejudices the interests of, any
participant or prospective participant.
• The manager should not pay or cause to be paid:
– any fees from the scheme that has not been provided for in
the trust deed
– any marketing or promotion expenses from the scheme

527
Performance Fees

Payable should meet the following requirements:

– Calculation must be equitable to all participants
– Calculated and paid after consideration of all other
payments
– Period and frequency should be appropriate (e.g. once a
year)
– Calculation methods:
• Fulcrum fee arrangement
(See Illustration 1)
• High water mark arrangement
(See Illustration 2)
– Calculated based on appropriate benchmark (e.g. index)
– Must consult Authority if it intends to use a calculation
method that is not specified.

527
Performance Fees
Fulcrum Fee Arrangement
The fee increases or decreases proportionately with the performance
of the sub-fund compared to the specified benchmark. and be limited
to between zero and 200% of the base fee

The fee is a percentage of the NAV per unit of the scheme, and
should be applied in a symmetric manner.

High Watermark Arrangement

The high water mark should be reset to the scheme’s NAV whenever
a historical high is reached at the point of performance fee
calculation.

Therefore, the high water mark of a scheme with performance fee

that is calculated yearly should be reset to the scheme’s NAV at the
year end when the performance fee is calculated, regardless of
whether a performance fee accrues or crystallises.
Example of Fulcrum Fee Arrangement

The benchmark is the MSCI World Index return. The scheme charges
a base fee of 2% and a performance fee of 10%.
5%
4%
3%
2%
1%
0% XYZ
-1% MSCI

-2%
-3%
-4%
-5%
Yr 1 Yr 2 Yr 3 Yr 4

529
Example of Fulcrum Fee Arrangement

Year 1 Year 2 Year 3 Year 4

Base Fee 2.0% 2.0% 2.0% 2.0%

Performance (3 - 5)% x [(-5) - (-4)]% (4 - 2)% x (5 - 4)% x

Fee (10%) * 10% = -0.2% x 10% = - 10% = 0.2% 10% = 0.1%
0.1%
Fulcrum Fee 2.0% + (- 2.0% + (- 2.0% + 0.2% 2.0% + 0.1%
0.2%) = 1.8% 0.1%) = 1.9% = 2.2% = 2.1%

529
Example of High Water Mark (HWM) Arrangement

The benchmark is the MSCI World Index return. The scheme charges
a base fee of 2% and a performance fee of 10%.
5%
4%
3%
2%
1%
0% XYZ
-1% MSCI

-2%
-3%
-4%
-5%
Yr 1 Yr 2 Yr 3 Yr 4

530
Example of High Water Mark (HWM) Arrangement
(Refer to Page 313)

Year 1 Year 2 Year 3 Year 4

Above HWM=1.0 HWM=1.03 HWM=1.03 HWM=1.03, Yes
HWM? 0, Yes , No , No
Above No No Yes Yes
Hurdle?
Performance None None None (1.07-1.03)
Fee x10%=S$0.004

Managemen 2.0%x1.03= 2.0%x0.98 2.0%x1.02= 2.0%x1.07=

t Fee S$0.0206 =S$0.0196 S$0.0204 S$0.0214

Total Fee S$0.0206 S$0.0196 S$0.0204 S$0.004 +

S$0.0214=S$
0.0254

530
Disclosure Requirements For Performance Fees

Performance fee should be contained in the Prospectus and it

contains the following:
 to whom it is payable;
 Can it be levied, even if the return of the scheme is negative ;
 maximum amount of the scheme’s NAV the fee may represent in
an annual accounting period;
 numerical examples of how the fee is calculated;
 whether the scheme achieves equalisation of the performance
fees or otherwise and how it will affect the amount of
performance fees borne by the participant.
The Scheme

Name of Scheme
Name of the scheme to be appropriate, not undesirable and not
misleading
MAS will consider whether the name:

implies that the scheme has

is substantially similar to the
merits which are not, or may not
name of another scheme
be justified

implies the manager has is inconsistent with the

particular qualities, which may scheme’s investment objective
not be justified or approach
The Scheme

may mislead prospective

participants into thinking that implies that the scheme is
persons other than the not a CIS (eg describing it as
manager are responsible for a ‘plan’ or ‘account’)
the scheme

Code allows the use of acronyms in names provided that they

are appropriate
The Scheme
Prohibited Activities
A scheme should not engage in:
 Direct lending of monies
 The granting of guarantees
 Underwriting
 Short selling
(except when it arises from financial derivatives)

Limited Liability
Liability limited to their investments in the scheme as
reflected in the trust deed.
532
The Scheme
Investment: Core Requirements
• The core investment guidelines
and borrowing limits which the
scheme should adhere to are set
out in the Appendices of the
Code.
• Where the scheme contains a
novel or new structure, risk or
investment policy, the manager
should consult the MAS prior to
its application for authorisation.
The Scheme

Advertisements in relation to a scheme should be prepared in

accordance with the Code of Best Practices in Advertising
Collective Investment Schemes and Investment-Linked Life
Insurance Policies jointly issued by Investment Management
Association of Singapore and the Life Insurance Association
Accounts and Reports
Manager has to prepare financial statements for the following
reports:

Accounts

Half-yearly Financial
Semi-annual report
Statements

Audited Financial
Annual report
Statements
The semi annual report or annual report need not be prepared if:
• The reports covers a period of less than 3 months from the start of the launch
period of the scheme;
• The termination or maturity date of the scheme is within 1 month prior to be
sent to the participants;

533
Accounts and Reports
Reports
Semi-annual and annual reports (based on the scheme’s financial
year) as at the end of the period under review should contain (where
relevant):

Investments at market value and as a percentage of the scheme’s

NAV, classified by country, industry, asset class, and credit rating;

The top 10 holdings at market value and as a percentage of the

scheme’s NAV, as well as that a year ago;

Exposure to financial derivatives;

534
Accounts and Reports
Reports 534

amount and percentage of the scheme’s NAV invested in other

schemes as at the end of the period under review;

amount and percentage of borrowings to the scheme’s NAV at the

end of the period under review

amount of redemptions and subscriptions for the period under

review;

amount of related-party transactions for the period under review;

the performance of the scheme and where applicable;

Accounts and Reports
Reports 534

expense ratios for the period under review and a year ago;

turnover ratios for the period under review and a year ago;

any material information that will adversely impact the valuation

of the scheme such as contingent liabilities of open contracts;

manager invests 30% or more of the scheme’s NAV in another

scheme, the following key information on the underlying scheme
should be disclosed:
• top 10 holdings at market value and as a percentage of the scheme’s
NAV as at the end of the period under review and a year ago;
• expense ratios for the period under review and a year ago
• turnover ratios for the period under review and a year ago;
Accounts and Reports

Reports 535

statement describing the soft dollars received from each broker

which executed transactions for the scheme.

where the scheme offers pre-determined payouts, an explanation

on the calculation of the actual payouts received by participants
and any significant deviation from the pre-determined payouts
Dealing And Valuation
Dealing In Units
The manager should deal in units in a scheme in accordance with
the trust deed and the prospectus, and in any event, at least one
dealing day a month.

Suspension & Resumption Of Dealings

The manager may suspend dealings in units only in exceptional

circumstances, after having determined that a suspension is in the best
interest of participants.
The manger should notify MAS if the dealing in Units is suspended, stating
the reasons for suspension.
The suspension should cease as soon as practicable and in any event,
within 21 days of the commencement of the suspension.
The trustee should notify MAS when the manager has resumed the
dealing in units
Dealing And Valuation
Valuation of Units in a Scheme

• The manager should issue, redeem or repurchase units in a scheme

at a price arrived at by dividing the scheme's NAV by the number of
units outstanding. This does not apply during the initial offer period
of the scheme.
• The price of units may be adjusted by adding or subtracting, as the
case may be, fees and charges, in compliance with the scheme's
prospectus or trust deed.
• The manager should ensure that the scheme’s NAV is calculated on
a consistent basis and in accordance with the manner prescribed by
the Institute of Certified Public Accountants of Singapore in the
Statement of Recommended Accounting Practice 7: Reporting
Framework for Unit trusts.
• At the maturity of capital guaranteed schemes which comply with
Appendix 4: Capital Guaranteed Funds, the units should be
redeemed at a price equal to the higher of the guaranteed amount
and the scheme’s NAV, divided by the number of units outstanding.
Dealing And Valuation
Valuation of Assets of a Scheme

• The value of the assets of a scheme, in the case of quoted

investments, should be based on:
- the official closing price or last known transacted price on the organized
market on which the investment is quoted; or
- the transacted price on the organised market on which the investment is
quoted at a cut-off time specified in the scheme’s prospectus and
applied consistently by the manager;
• The value of the scheme’s assets, in the case of unquoted
investments and quoted investments where the transacted prices
are not representative or not available to the market, should be
based on the fair value.
• The fair value should be the price that the scheme would reasonably
expect to receive upon the current sale of the investment
• Fair value: determined with due care & in good faith
• Ensure that there are documentation for determining the fair value
Dealing And Valuation

Valuation of Assets of a Scheme

• Except for quoted investments, all the investments of a scheme

should be valued by a person approved by the trustee as qualified to
value such assets.
• When the market value or fair value of a material portion of the
scheme’s assets cannot be determined, the manager should
suspend valuation and dealing in the units in the scheme.
Dealing And Valuation

Basis Other Than Market Quotations

• The value of the assets of a scheme may be

determined using methods other than those as
specified in Chapter 6.4(e) and (f) of the Code
provided that the trustee agrees with the alternative
method.
• Such a valuation may be performed by a person
approved by the trustee as qualified to value the
scheme‘s investments.
Dealing And Valuation

Frequency of Valuation
• The manager should value the units in a scheme every business
day.
• Where the scheme does not offer dealing every business day, it
should be valued every regular dealing day, but in any event, at
least once a month.
• A property fund which complies with Appendix 6 of the Code:
Property Funds should have a full valuation at least once a year.
• The manager should, subject to Chapter 6.4(j) of the Code,
publish the value of a unit of the scheme at least once every
dealing day.
Dealing And Valuation
Rounding Differences

Illustration 3: Crediting of Rounding Rounding differences arising

Differences from calculating price of units
Example: Crediting of Rounding Differences in a scheme, or arising from
Price per unit = NAV / Number of units the calculating the number of
outstanding units to be issued should be
= S$ 122.4 million / 100 million credited to the scheme.
= S$1.224
Assuming a participant with 10,000 units
redeems all his units at S$1.22 per unit, the
scheme should then be credited with a
rounding difference of:
S$(1.224- 1.22) * 10,000
= S$0.004 * 10,000
= S$40
Dealing And Valuation

Valuation Errors And Compensation

Valuation Error:
Should
0.5% or more
compensate and
+ notify participants
Exceeds $20

Valuation Error: Not required to

Less than 0.5% make
compensation

(See pg 539 for Illustration 4:

Valuation Error Report Template)
Breaches

539 Notify MAS

within 3
Not enter into business day
any transaction
Rectification as that would
soon as increase extent
practical of breach
Identify Breach

Any breach arising as a result of any:

• appreciation or depreciation in the value of the scheme's
underlying investments;
• redemption of units or payments made from the scheme;
• change in the capital of a company;
• reduction in the weight of a constituent in the benchmark
being
• downgrade in or cessation of a credit rating
Need not be reported to MAS as long as such breach is rectified
no later than 3 months
Recognised Schemes & Authorised Schemes which Feed
into an Underlying Scheme

Recognised Scheme or Underlying

Authorised Feeds into SchemeR
Scheme
-Intends to use or invest in financial
derivatives (must have a prominent
statement drawing attention to this in
the marketing material)

- High volatility due to its Investment

policies

Notifications
Where the home financial supervisory authority of a recognised scheme / underlying
scheme imposes or varies any condition in relation to it authorisation
-> must be inform no later than 14 days after the condition has been imposed.
Should the scheme revised its risk management process, documentation should be
submitted to the Authority
-> The revised documentation should be submitted to the Authority as soon as
practicable but no later than 1 month after it has been approved by the by the home
financial supervisory authority.
Core Investment Requirements for
All Authorised Schemes – Permissible Investments

A scheme’s underlying investments must consist of permissible

investments. These include:

transferable money market eligible

securities instruments deposits

unlisted shares
units in other financial
or similar
schemes derivatives
securities

Each category of permissible investments is subject to its own

further conditions.

541
Core Investment Requirements for All Authorised Schemes –
Permissible Investments Spread of Investments and their Limits

Single Entity Limit & Group Limit

 Investments in transferable securities or money market

instruments issued by a single entity should not exceed 10% of
the scheme’s NAV
 Aggregate investments in a group of entities through
transferable securities, money market instruments, eligible
deposits and counterparty risk exposures arising from the use of
OTC financial derivatives should not exceed 20% of the scheme’s
NAV

Short-Term Deposits

 The group limit does not apply to placements of eligible deposits

arising from subscription monies received at any point in time pending
the commencement of investment by the scheme or liquidation of
investments prior to the termination or maturity of a scheme
Spread of Investments and their Limits
Benchmark Limt

 Where the scheme and its reference benchmark comply with sections 4
and 5 of Appendix 5: Index Funds, the scheme may invest in a
transferable security that is a constituent of the reference benchmark,
up to a single entity limit as specified in paragraph 2.1(a) of this
Appendix or two percentage points above the benchmark weight,
whichever is higher.

 Where the foregoing single entity limit is in excess of the limit in

paragraph 2.1(a) of this Appendix, the group limit of 20% may be raised
to 25% of the scheme’s NAV.
Spread of Investments and their Limits
Government and other Public Debt Securities/
Money Market Instruments
 Single entity limit may be raised to 35% from 10% of the
scheme’s NAV where the issue is guaranteed by a government,
government agency or supranational that has a minimal long-
term rating of BBB by credit rating agency
 If there is a downgrade in rating to below the minimum, the
single entity should revert to 10%
 Single issue of transferable securities by the same entity or
trust for Schemes with a fixed maturity has a limit of not more
than 20% of the NAV that can be invested
Spread of Investments and their Limits

Unrated & Non-Invested Grade Corporate Debt Securities

 The single entity limit of 10% for bonds and other securitised debt
instruments is lowered to 5% of the scheme’s NAV if the issuing entity or
trust:
 is unrated and have long-term rating below BBB credit rating by credit
rating agencies
 The manager may rely on ratings of an unrated issuer’s parent company
provided that an explicit guarantee by the parent company for the issuer is
in place or internal rating of an unrated issuer if the manager has satisfied
the trustee that its internal rating is comparable to a rating issued by Fitch,
Moody’s or Standard & Poor’s.
Spread of Investments and their Limits
Commodity-Backed Debt Securities
 A scheme may invest in debt securities that are undated, secured by
physical commodities, listed for quotation and traded on an organised
exchange

Investment in Other Schemes

 A scheme may invest up to 100% of its NAV in another scheme if the
underlying scheme satisfies Appendix 1 of the code.
 Investment in other schemes that do not satisfy the code should not
exceed 10% of the scheme’s NAV

Alternative Exposure Limits

 Shares, Debt Securities that are not approved or undated have a limit of
10% that can be invested

Concentration Limit
 Concentration limit for shares, debt securities, money market
instrument to any single entity or trust
Global Exposure
Global exposure of a scheme to financial derivatives or embedded
financial derivatives should not exceed 100% of the scheme’s NAV at all
times.

To reduce a scheme’s exposure to financial derivatives the following can

be taken into account:

• Commitment Approach
• Value at Risk (VaR) Approach
• Netting Arrangements
• Hedging Arrangements

(Refer to Pages 547 – 548)

Use Of Financial Derivatives

Spread of Underlying Assets

• The exposure of a scheme to the underlying assets of financial

derivatives should be sufficiently diversified on a portfolio basis.
• Where the underlying assets are:
– transferable securities, money market instruments, eligible
deposits or units in other schemes, the limit in “Spread of
Investment and their Limits” apply
– commodities, the limits in section 4 of Appendix 5: Index Funds
apply
– indices, paragraphs 4.2(a) and (b) of this Appendix apply to each
constituent of the index, where applicable, on a portfolio basis
Use Of Financial Derivatives
Embedded Financial Derivatives

• Where a transferable security or money market instrument embeds a

financial derivative, the requirements in sections 3 and 4 apply to the
embedded financial derivative.
• Where the counterparty risk of the embedded derivative is or may be
transferred to the scheme, the requirements in section 5 also apply to
the embedded financial derivative.
• A transferable security or money market instrument is considered to
be embedding a financial derivative if it fulfils certain criteria
• EXCEPT where it contains a component which is contractually
transferable independently of the transferable security or the money
market instrument. Such a component should be deemed to be a
separate financial instrument.
• Where an instrument is structured as an alternative to an OTC financial
derivative or tailor-made to meet the specific needs of a scheme, the
instrument should be deemed as embedding a financial derivative
Use Of Financial Derivatives
Cover

• A transaction in financial derivatives which gives rise, or may

give rise, to a future commitment on behalf of a scheme should
be covered as follows:
- Financial derivatives which will, or may at the option of the scheme,
be cash settled, the scheme should hold, at all times, liquid assets
sufficient to cover the exposure;
- Financial derivatives which will, or may at the option of the
counterparty, require physical delivery of the underlying assets, the
scheme should hold the underlying assets in sufficient quantities to
meet the delivery obligation at all times.
- Manager deems the underlying assets to be sufficiently liquid, the
scheme may hold as coverage other liquid assets in sufficient
quantities, provided that such alternative assets may be readily
converted into the underlying asset at any time to meet the delivery
obligation.
Use Of Financial Derivatives
Exposure to Financial Derivatives –
Commitment Approach
• The exposure of the scheme to financial derivatives under the
Commitment Approach is on pg 551. Exposure is determined by
converting the positions in financial derivatives into equivalent
positions in the underlying assets.

551
Counterparty Of Financial Derivatives
OTC Financial Derivatives
• The counterparty of an OTC financial derivative should be subject
to prudential supervision by a financial supervisory authority in its
home jurisdiction.
• The maximum exposure of a scheme to the counterparty of an OTC
financial derivative may not exceed:
– In the case of an eligible financial institution, 10% of the
scheme’s NAV; or
– In other cases, 5% of the scheme’s NAV
• An eligible financial institution should have a minimum long-term
rating of A by credit rating companies
• The exposure to a counterparty of an OTC financial derivative
should be measured based on the maximum potential loss that
may be incurred by the scheme if the counterparty defaults and not
on the basis of the notional value of the OTC financial derivative.
Counterparty Of Financial Derivatives
Calculation Method 553

• The exposure to a counterparty of an OTC financial

derivative should be calculated as follows:

• Details of the calculation can be found on pg 554

Recognition of Collateral

• The exposure to a counterparty may be construed as being

lower if collateral is tendered to the scheme. The collateral
should meet the following requirements:
a) it is marked-to-market daily;
b) it is liquid;
c) it is taken into account, on a portfolio basis, for the purposes of the
requirements
on spread of investments in section 2 of this Appendix;
d) it is not issued by the counterparty or its related corporations;
e) it is held by a custodian which is:
i) a financial institution subject to prudential supervision by a financial
supervisory authority in its home jurisdiction; and
ii) independent of the counterparty;
f) it is legally secured from the consequences of the failure of the
custodian,
counterparty and their related corporations; and
g) it cam be fully enforced by the trustee at any time;
h) it is free from all prior encumbrances; and
i) it cannot be sold or given as security interests
Recognition of Collateral

• Risk is lower if collateral is tendered to the scheme.

• Collateral may consist of Cash, money market instruments or
bonds. They should be issued by or have the benefit of a
guarantee from a government or supranational that has a long
term rating of AAA.
• Securities debt instruments, money market instruments or
bonds with embedded financial derivatives are not eligible as
collateral.
Requirements of collateral:
 It is liquid;
 Not issued by related corporations;
 Held by a custodian which is subject to proper supervision;
 Fully enforced by the trustee at any time;
 Free from all encumbrances
Counterparty Of Financial Derivatives
Reinvestment of Collateral

• Collateral obtained in the form of cash by the scheme may be

reinvested
• Notwithstanding the above, the cash collateral obtained should
not be invested in transferable securities issued by, or placed
on deposit with, the counterparty or its related corporations
• Non-cash collateral obtained by the scheme may not be
reinvested

555
Counterparty Of Financial Derivatives
Recognition of Netting

• Scheme may net its OTC financial derivative positions with the
same counterparty through bilateral contracts for novation or
other bilateral agreements between the scheme and its
counterparty provided that such netting arrangements satisfy
certain conditions (pg 556)

556
Exchange-Traded Financial Derivatives
• These are financial derivatives which are transacted on an
exchange where the clearing house performs a central
counterparty role and have trades which are characterised by a
daily marked-to-market valuation of the financial derivative
positions and subject to at least daily margining.
Margins

Any exposure arising from initial margin posted and the variation
margin receivable from a counterparty relating to OTC (Over-The-
Counter) or exchange-traded financial derivatives, which is not
protected against insolvency of the counterparty, is to be included
in the counterparty limit.
Efficient Portfolio Management (EPM)
Techniques
Use of securities lending and repurchase transactions for the purpose
of EPM is allowed, but must be effected with good market practice:
 Lending transferable securities and money market instruments directly
must be through:

A standardised lending
system facilitated by a Securities lending agents
clearing house which who are specialists in
performs a central securities lending
counter-party role; or

The counterparty to a securities lending agreement or repurchase

transactions should be a financial institution subject to prudential
supervision by a financial supervisory authority in its home jurisdiction;
and have a minimum long-term rating of A by Moody's, A by Standard
and Poor's or A by Fitch (including sub-categories or gradations
therein).
Efficient Portfolio Management (EPM)
Techniques
 Refer to pg 558 for details of Recognition of collateral and pg 559
for Reinvestment of collateral

Settlement
 The scheme or its agent should receive eligible collateral before, or
simultaneously with, the transfer of ownership of the transferable
securities lent
 Upon termination of the securities lending or repurchase transaction,
the eligible collateral may be remitted by the scheme or its agent
after, or simultaneously with the restitution of the transferable
securities lent.

Liquidity
The manager should ensure that:
 the volume of securities lending or repurchase transactions is kept at an
appropriate level; and
 the scheme or its agent is entitled to terminate the securities lending or
repurchase transaction and request the immediate return of its transferable
securities lent without penalty, in a manner which enables the scheme to meet its
redemption obligations and other payment commitments.
Borrowings

To meet redemptions and bridging requirements the

scheme may temporarily borrow up to 10% of its NAV
at the time of borrowing.
Maximum borrowing period: 1 month
Disclosure Requirements

• The use of back-testing or simulated past performance data for

disclosure of performance figures in the prospectus, reports and
marketing materials is prohibited.
• Where the scheme's NAV is likely to have a high volatility due to
its investment policies or portfolio management techniques, a
prominent statement drawing attention to this possibility should
be included in the marketing material of the scheme.
Use Of Financial Derivatives

• Where a scheme intends to use or invest in financial derivatives, the

prospectus should include the following:
(a) whether financial derivatives employed in the scheme are used for the
purpose of hedging, EPM, optimising returns or a combination of all
three objectives;
(b) the method used to determine the scheme's exposure to financial
derivatives (i.e. commitment approach, relative VaR or absolute VaR), a
description of the method, and:
(i) if the VaR Approach is used, the expected level of leverage, based on the sum of
the notional of the derivatives used, and the possibility of higher leverage levels
should be included;
(ii) if the relative VaR Approach is used, the reference portfolio (or benchmark) and
the rationale for using the reference portfolio (or benchmark) should be included;
and
(iii) if the absolute VaR Approach is used, the absolute VaR limit and the rationale for
the absolute VaR limit should be included; and
(c) a statement that the manager will ensure that the risk management
and compliance procedures are adequate and has been or will be
implemented, and that it has the necessary expertise to manage the
risk relating to the use of financial derivatives.
Use Of Financial Derivatives
• Where a scheme uses or invests in financial
derivatives, the semi-annual and annual reports
should include the following:
(a) the method and a description of the method used to calculate
the global exposure;
(b) information on the reference portfolio (or benchmark) where the
relative VaR Approach is used; and
(c) the level of leverage employed, based on the sum of the
notional value of the derivatives used, during the relevant period
where the VaR Approach is used.
• Where a scheme intends to use or invest in financial
derivatives, a prominent statement drawing attention
to this intention should be included in the marketing
material of the scheme.
Counterparty Of Financial Derivatives

• Where collateral is used to mitigate the scheme's

exposure to the counterparty of OTC financial
derivatives, the scheme's semi- annual and annual
reports should provide a description of the collateral
holdings, including the:
(a) nature of the collateral;
(b) identity of the counterparty providing the collateral;
(c) marked-to-market value of the non-cash collateral
with a breakdown by asset class and credit rating (if
applicable); and
(d) value and types of investments made with the cash
collateral, with a breakdown by asset class and credit
rating (if applicable).
Disclosure for Securities Lending:
Prospectus Semi Annual Report and Annual Report

All securities lending and repurchase Total value of the transferable securities lent
agreement transactions;
Description & a nature of the collateral holdings
Purpose, conditions & limits they are
conducted Marked-to-market value of non-cash
Collateral
Any conflict of interest (lent to related
corporations) Value & types of investments made with cash
collateral
Inherent risks
Identify of counterparty providing the
Revenue sharing arrangement Collateral
between the scheme, manager
Revenue earned by the scheme &
Manager
Commodity Exposures

• The prospectus should include a description of the

commodities which would be highly correlated, and
therefore, treated as giving exposure to the same
commodity when applying the limits in Section 4 of
Appendix 5: Index Funds of the Code, and how such
correlation is determined
Appendix 3 of the Code – Hedge Funds
A hedge fund aims to achieve a high return through the
use of advanced investment strategies involving :

Illiquid financial Financial Concentration

instruments derivatives of investments

Use of
Leverage or
alternative asset
short selling
classes

568
Appendix 3 of the Code – Hedge Funds
Prime Broker
 The prime broker of a hedge fund should be subject to prudential
supervision by a financial supervisory authority in its home
jurisdiction.
 Where the prime broker is a related corporation of the manager, the
manager should have effective arrangements in place to manage
potential conflicts of interest.

Name of Scheme
 The name of the scheme should reflect the nature of
a hedge fund or FOHF, where appropriate.
Single Hedge Funds VS
Fund of Hedge Funds (FOHF)

Single Hedge Funds Fund of Hedge Funds

• 1 Fund • Feeds into at least 15

• 100% into 1 fund funds
• Not exceeding 8%
each funds
Appendix 3 of the Code – Hedge Funds
Single Hedge Funds Fund-of-Hedge-Funds
(FOHF)
Minimum S$100K per participant S$20K per participant
Subscription
Minimum Lesser of S$100K or S$20K or number of units
holding #units bought with bought with S$20K at
S$100K at subscription subscription

Manager Have at least 2 Have at least 2 executives

executives with at least with at least 5 years of
5 years of hedge funds hedge funds management
management experience, of which 3
experience years are in FOHFs
Appendix 3 of the Code – Hedge Funds
Single Hedge Fund-of-Hedge-Funds
Funds (FOHF)
Other Only directly in May invest in an underlying
investments another single hedge FOHF only if latter invests
fund which is not a directly in other single hedge
feeder scheme. funds.
No further layer of Should be diversified in ≥ 15
feeding is allowed hedge funds, and not more than
8% allocation in a single hedge
fund.
Borrowings May be leveraged to Underlying hedge funds of
the extent disclosed FOHF may be leveraged to the
in the prospectus. extent disclosed in the
prospectus.
Borrowing period not more than
3mths; aggregate borrowings
not more than 25% of FOHF’s
NAV.
Appendix 3 of the Code – Hedge Funds
Single Hedge Funds Fund-of-Hedge-Funds
(FOHF)
Dealing At least 1 regular dealing At least 1 regular dealing day
day per month. per month.
Redemption proceeds Redemption proceeds paid
paid within 90 days from within 90 days from the
the dealing day that dealing day that the
redemption request is redemption request is
accepted accepted
Risk Annual certification of Due diligence for selection of
Management, procedures and controls underlying hedge funds; and
Monitoring and for monitoring the ongoing monitoring
Internal management and risk of Annual certification of
Controls fund to be sent to MAS procedures and controls to
be sent to MAS
Disclosure Requirements
Prospectus
Must state the material differences between a hedge fund and
other CIS. The prospectus of a hedge fund or FOHF should include:

a statement that the manager will ensure the risk management

and monitoring procedures, as well as adequacy of internal
controls;

a statement that the manager

has the necessary expertise the profile and role of the
and control to manage the prime broker, if applicable.
risk;

571
Disclosure Requirements
Accounts and Reports
 Manager prepares, and make available to the trustee for each financial
year :
 quarterly reports
 semi-annual accounts and reports
 annual audited accounts and reports
Reports will then be sent to participants within the stipulated periods.
For an FOHF, the quarterly report should be sent within 45 days from the
end of the period covered by the report.

 The trustee should send to participants the annual audited accounts and
report within three months from the end of each financial year of the
scheme, namely:
• For the semi-annual accounts and report within two months from the end of
the period covered by the accounts and report; and
• For the quarterly report within one month from the end of the period covered
by the report.
Disclosure Requirements
Marketing Material
• Marketing Materials should state:
– the fees and charges payable.
– an investment in the hedge fund carries risks of a different nature from
other types of collective investment schemes, and that the hedge fund
may not be suitable for persons who are averse to such risks.
– where the hedge fund is not capital guaranteed, participants may lose all
or a large part of their investment in the hedge fund; or for capital
guaranteed, participants are subject to the credit risk of the guarantor.
– an investment in the hedge fund is not intended to be a complete
investment programme for any participant.
– prospective participants should carefully consider whether an
investment in the hedge fund is suitable for them in the light of their own
circumstances, financial resources and entire investment programme,
and any other inherent risks of investing in the hedge fund
574
Appendix 4 of the Code:
Capital Guaranteed Funds
• Capital guaranteed funds apply to a scheme which guarantees the return of
capital invested by participants at a pre-determined date in the future.
• For example, a capital guaranteed hedge fund should comply with the
requirements in this section and Appendix 3 of the Code on hedge funds.

The Guarantor

Eligibility
If a financial institution, it must It should not be the issuer of
have a minimum long-term transferable securities and
rating AA by Fitch, Aa by money market instruments that’s
Moody’s, or AA by S & P > 10% of the scheme’s NAV

If the guarantor ceases to be rated, (except in certain

circumstances), the manager should within six months, or sooner if
the trustee considers it to be in the best interest of the participants,
enter into a new agreement with a new guarantor
Appendix 4 of the Code:
Capital Guaranteed Funds
Between guarantor and trustee :
• Guarantor and trustee must enter into a written agreement
• Unconditional guarantee to be provided by the guarantor

The guarantee:
• The guarantee should not be less than 100% of the capital
invested by the participants less initial sales charges or front-end
loads
• The trustee should send to participants the annual audited
accounts and report within 3 months from the end of each
financial year of the scheme
• Quantum and duration of guarantee should be as stated in
prospectus and marketing material
Appendix 4 of the Code:
Capital Guaranteed Funds
Circumstances leading to termination of guarantee:
1. By the trustee due to guarantor going into liquidation;

2. By the guarantor or trustee, if new legal or regulatory

requirement renders agreement for guarantee to be illegal,
or which renders it impractical to continue;

3. By the guarantor or trustee, if capital guaranteed fund

is voluntarily terminated
Notification to Participants

Manager should notify the participant where the guarantee applies

only on any particular date(s) or after a specified period of time and
the guaranteed redemption value

• If the guarantees only applies on any particular date(s)

– The manager should notify the participants 30 days before such date(s)
• If the guarantees only applies after a specified period of time
– The manager should notify the participants at least 30 days before the first
day that the guarantee applies
• If there is a min period for the participants to submit their request for
redemption of units at guaranteed value
– The manager should notify the participants of this at lest 30 days before
the start of such period
THE END

FINISH
CMFAS Module 5: Rules &
Regulations for Financial
Advisory Services
Chapter 13: Central Provident Fund (CPF)

5th Edition April

The information is provided on the basis that all

You are highly advised to read the Study Guide

provided by the Singapore College of
Insurance for your exam preparation and do not
solely depend on this e-learning module as this
is only a supplement to aid in your exam
preparation.

You are not allowed to print and download

01
02
CPF

Five Pillars of Financial Security

Other Schemes Under CPF

Key Learning Objectives

 Objectives and uses of various CPF accounts

 Five pillars of financial security and other

schemes under the CPF
Central Provident Fund (CPF)

Started on 1 Singapore economy Evolved into

July 1955 progressed comprehensive
changes made and unique social
security savings
system
• National old age • CPF LIFE
savings plan Scheme was
• Five pillars of
introduced in
• Ensure that financial security:
September
every worker in • Retirement
2009.
Singapore would adequacy
have sufficient • To realise the
ideal of lifelong • Home ownership
income to meet
basic expenses retirement • Healthcare
during their income • Family protection
retirement years. • Asset
enhancement.
Central Provident Fund (CPF)

CPF Contributions 580

Employees (Singapore
Employers contribute a

+
citizens and PRs)
percentage to
contribute a percentage
employees’ (Singapore
of their monthly income
citizens and PRs) CPF
and bonuses to their CPF

Self-employed Singapore citizens and PRs need only contribute to

Medisave, but can make voluntary contributions to their CPF
CPF

Ordinary Account
The bulk of total CPF contributions is
At age 55,
credited into the OA.
 Buy residential property
Retirement
 To pay for certain insurance
Account
 For investment in certain financial
Options:
EMPLOYEE instrument
 Left in CPF
 Provide for or education
RA
Contributions to OA earn a lower
 Buy deferred
CPF interest rate than other account
life annuity
EMPLOYER
Special Account  Participate in
 Primarily for old age CPF Life
 For selected investments

Medisave account
 For hospitalisation expenses
 Pay for MediShield Life and
medical insurance
CPF Accounts
• Residential property
Ordinary investments
Account • Selected investments
• Education

CPF
Accounts

Special
Medisave
Account

• Healthcare • Old age

Needs • Selected
investments
Medisave Account & Retirement Account
At age 55,

Retirement
OA SA Account

Options for Use of Funds in the Retirement Account:

a) Left in the CPF member’s Retirement Account
b) Used to buy a deferred life annuity from an approved life
insurer; or
c) Participate in the CPF Life scheme
Note: CPF is administered by the CPF Board which is a statutory board
under the MOM
Minimum Sum under
CPF Retirement Sum Scheme (RSS)

The RSS provides the CPF member with a monthly income to support
a basic standard of living during retirement for about 20 years

• On reaching age 55, a CPF member has to set aside the

Basic Retirement Sum (BRS) in his Retirement Account
• CPF member can choose his CPF LIFE plan at the point
when he wishes to receive his monthly payouts, at the CPF
LIFE Payout Eligibility Age (65) instead of at age 55
5 Pillars of Financial Security Under the CPF

Retirement Adequacy

Property Ownership
Social
Security Healthcare Financing
Savings
Scheme
Family protection

Asset Enhancement
Retirement Adequacy

At age 55: At age 65:

• Monthly payments
under CPF Retirement
Basic Retirement Sum Set aside a Basic
Sum Scheme(RSS)

from the RSS, or

Retirement Sum (BRS) • A monthly payout
under the CPF for life, if he has
Retirement Sum opted for the CPF
Scheme (RSS) Life Scheme

Remaining amount in
the CPF can be
withdrawn
Retirement Sum Scheme (RSS)
CPF Member who Est. monthly Retirement Account
payouts for Life * Savings Required at
from age 65 age 55
a) owns a property & S$ 730 – S$ 790 Basic Retirement Sum
choose to withdraw (BRS) :
RA savings above S$ 88,000 in 2019
BRS (has sufficient
CPF charge/ pledge
on his property)
b) does not own a S$ 1350 –S$1450 Full Retirement Sum
property or chooses (FRS):
not to withdraw RA S$ 176,000 in 2019
savings above BRS FRS = 2 X BRS
c) wishes to put more S$ 1960 – S$2110 Enhanced Retirement
savings in CPF LIFE Sum ( ERS) :
S$264,000 in 2019
ERS = 3 x BRS
Basic Retirement Sum (BRS)

BRS will increase by 3% for each successive cohort to account for

inflation:

CPF member’s age Basic Retirement

of 55 years in Sum (BRS)

2016 S$ 80 500 Choice for CPF member:

Receive payout at age 65
2017 S$ 83 000 or defer up to age 70 so
as to receive higher
2018 S$ 85 500 monthly payouts

2019 S$ 88 000

2020 S$ 90 500
CPF Life
Scheme provides the CPF member with a lifelong monthly payout
from the payout eligibility age.

CPF members will be placed on the Scheme if they:

Have at least S$ 40 000 in his

Are Singapore Citizens or
RA at age 55, or S$ 60 000 in
PRs born in 1958 or after; his RA at age 65

A CPF member not placed on the Scheme can apply to join

anytime between the age when he wants to start receiving the
monthly payout and before he turns 80.
CPF LIFE Plans

CPF LIFE Standard Plan CPF LIFE

CPF LIFE Basic Plan
Escalating Plan
Higher payout, Lower payout, Monthly payouts that
lower bequest higher bequest
start lower but
increase by 2% yearly
• For CPF member attaining thee age of 55 before 1 July 2015, he has to
choose his CPF LIFE Plan one month after his 55th birthday. He has 6
months to choose, if he does not choose a plan, the Board will place him
under CPF LIFE Standard Plan
• Monthly payouts are not fixed and reviewed annually.
• CPF Board may adjust the payout according to mortality experience,
interest rate and transactions which affect the CPF member’s Retirement
Account balance.
Bequest

Bequest refers to the money left to the

beneficiaries upon death

There may not be a bequest if the CPF member

passes away after the savings used to join CPF
LIFE have been fully paid out in monthly payouts

How do I decide which plans to choose?

The plans differ in their monthly payout and the

level of bequest
Allocation And Description Of CPF LIFE
Plans Before 1 January 2013 585

Monthly
Payout
LIFE
Income
Plan
LIFE
Plus
Plan

Monthly Payout
LIFE
Balanced
Plan

LIFE
Basic
Plan

Bequest
Allocation And Description Of CPF LIFE
Plans After 1 January 2013
• Existing CPF LIFE
policyholders on any of
the four current plans
can continue to remain
on their existing plans.
• An existing policyholder
may also choose to
switch to the new
Standard Plan before 31
December 2013 if he
finds that it now better
meets his retirement
Flexibility to Flexibility to needs.
use RA for use RA for • However, there will be no
Housing Housing free-look period after a
Prior to age 65 After to age 65 CPF member has chosen
to switch to the new
Standard Plan.
Healthcare Financing

Private
Medishield Medical
Insurance
Scheme

Medisave Eldershield
Medifund

CareShield
Life (from
2020)
Healthcare Financing

Medisave National medical savings scheme to help

individuals meet their future as well as their
dependants’ medical needs, during retirement.
Dependants refer to spouse, children,
parents and grandparents.
Grandparents must be Singaporeans or
Singapore Permanent Residents.

 Medisave Minimum Sum removed

 Medisave Contribution Ceiling renamed as
Basic Healthcare Sum (BHS)
• Set at S$ 57,200
• Amount is applicable to a CPF member
who is  65 years in 2019
Healthcare Financing

Medisave WEF January 1, 2016

• If CPF member is  65 yrs in 2019, S$ 57,200

is his BHS for life. If < 65 yrs, his BHS is
adjusted yearly until he turns 65. This will
then be his BHS for life.
• Medisave contributions will go into MA to
build up the balance till it reaches the BHS.
• Amount above BHS is transferred to other
CPF accounts as specified.

 BHS can be used to pay for premiums for Medishield Life and
Eldershield of the CPF member and his dependants
Healthcare Financing

Medisave
WEF January 1, 2016

 Topping up of MA:
• If CPF member is < 65 years, he can do
voluntary top up after each annual
adjustment of the BHS.

• If  65 years, he can top up anytime if

his MA balance falls below the BHS
applicable to him
Healthcare Financing
Medifund A Government endowment fund to help:
 needy Singaporeans pay for medical expenses;
and
 those who face financial difficulties with the
balance of their bills even after government
subsidies, cash, Medisave, Medishield Life and
private Integrated Shield Plans (IPs).

Must meet eligibility criteria to apply for assistance, through the

Medical Social Workers at Medifund-approved institutions
Healthcare Financing

MediShield
Life • Replace MediShield Scheme
• Basic healthcare insurance scheme, providing
universal coverage to Singaporeans and
Singapore PRs.
• Those who choose to stay in Class A / B1
wards in public hospitals or private hospitals
can still benefit from MediShield Life. However,
the payouts are calculated based on a
percentage of the hospital bill, so that the
payouts are at about the same level as
someone who seeks treatment in a Class B2 /
C ward of a public hospital
• Pro-rated downwards if stay is in a higher ward
or a private hospital.
Healthcare Financing
IPs comprise of two parts, a MediShield Life
Private Medical component managed by the Central Provident
Insurance Scheme Fund (CPF) Board, and additional benefits
offered by private insurers
Medisave savings can be used to buy Medisave-
approved Integrated Shield Plans for themselves
and their dependants (parents, spouse, children,
and grandparents)

Additional Withdrawal Limits (per insured, per

policy year):

Age Withdrawal Limit

ANB  40 years old S$ 300
ANB 41 – 70 S$ 600
ANB ≥ 71 S$ 900
Healthcare Financing
Automatic cover from age 40
ElderShield
Severe disability insurance scheme to provide
basic financial protection to those who need long-
term care.
A monthly benefit is paid if the CPF member cannot
perform at least 3 of the Activities of Daily Living:

Dressing Toileting Transferring

Washing Feeding Mobility

Premiums are payable annually till age 65 and can be made in cash
or from the member’s Medisave.
Healthcare Financing

CareShield Life
Features higher payouts that increase over time with no cap
on payout duration, to provide better protection against the
uncertainty of long term care costs if you become severely disabled.

CareShield Life will provide better protection and assurance in 4 ways:

 Lifetime cash payouts for as long as one is severely disabled
 Payouts increase over time, starting at $600 per month in 2020 and increasing
until age 67, or when one makes claims, whichever is earlier.
 Government Subsidies to make it affordable, so no one will lose coverage if
they cannot pay the premiums.
 Premiums can be fully payable by MediSave.
Property Ownership
• To give Singaporeans an asset to call their own, the Singapore
Government makes it easy to buy and own a flat by allowing the use of
CPF savings to aid housing payments.

Already own a property

CPF Ordinary and wish to buy another
Account savings property with CPF
savings from 1 Jul 2006

May use their CPF

Can be used to buy a
savings, up to the
residential property
Valuation Limit, but will
under the CPF
be subject to conditions
housing schemes
based on their age

Can be used for full or If < 55 years old, need to

part payment of set aside the current BRS
property and to service in SA and OA
the monthly housing If ≥ 55 years old, need to
payments set aside BRS in RA, SA
and OA

• Regardless of age, if one currently owns a HDB flat and wish to purchase a
second HDB flat, HDB will require the owner to sell off their existing HDB
flat within 6 months upon receiving the keys to their second HDB flat
Property Ownership

Savings in CPF Ordinary Account can be used to buy a residential

property under the CPF housing schemes :
 Public Housing Scheme (HDB flat)
 Private Properties Scheme

If the CPF member already owns a property bought with

CPF savings and wishes to buy a second property or
subsequent property, he has to set aside his current
Basic Retirement Sum (BRS) before the excess in the
Ordinary Account can be used for the purchase.

Savings in the Special Account ( including the amount

used for investments) and Ordinary Account can be
used to meet the requirement.
Public Housing Scheme

Applies to government-built Housing & Development Board (HDB)

flats, new or resold

CPF Usage for HDB Flat

Direct Purchase from HDB

All of savings in CPF-OA can be used for :
 the initial deposit, and
 the balance of the purchase price
Resale flat bought in the open market

• Only CPF savings up to the Valuation Limit ( VL *) can be used.

• The VL refers to the market value of the flat at the time of
purchase or the purchase price, whichever is lower.
• If applying for an HDB loan, all the savings in the CPFIS-OA
must be exhausted before loan is granted.
• CPF savings can also be used for payment of survey and legal
fees, stamp duties.
CPF Usage For HDB Flat
All the savings in the CPF Ordinary Account can be used
to pay the initial deposit, as well as the balance of the
purchase price.

Resale flats bought in open market

CPF savings may be used to pay up to the Valuation
Limit (VL).

 If a housing loan is taken, future monthly CPF

contributions may be used to pay the monthly
instalments.

 CPF Ordinary Account savings may also be

used to pay for the stamp duty, survey and
legal fees
CPF Usage For HDB Flat
From 10 May 2019

• If the remaining lease of the home can cover the

youngest buyer until at least the age of 95, home
buyers will be allowed to obtain maximum CPF
usage and HDB housing loan (for HDB flat buyers)

• Those who do not meet this criteria will still be able

to use CPF and take up an HDB housing loan, but the
amount will be pro-rated.
CPF Usage For HDB Flat
From 10 May 2019

Consequential changes to purchase of multiple properties using CPF:

 Members who do not have any property bought using CPF monies that
covers them until at least the age of 95 will need to set aside the Full
Retirement Sum before using excess OA monies to purchase second or
subsequent properties

Consequential changes to CPF usage after age 55:

 If remaining lease of the property cover the buyer until at least the age of
95 – buyer can use Retirement Account (RA) savings above the BRS to pay
for the property
 Members approaching age 55 can ask CPF Board to reserve their OA
savings so that they may continue servicing their mortgage payments
after the age of 55.
Bank Loans
HDB flat purchasers / transferees must get a Letter of Offer from
the bank / financial institution before exercising Option to
Purchase for the flat
CPF Charge
A CPF charge on the flat is effected immediately upon release
of CPF moneys for the flat, until all moneys secured by the
charge and the interest accrued are refunded into CPF
member’s account
The CPF Board may accept an application and release
information on the CPF Board's charge on a flat to any public
authority and / or CPF member.

An administration fee of S$21.00 (including GST) will be

imposed for the release of such information.
Notification of Changes to Loan Details

The CPF member, and his financier (if any) must inform the CPF
Board of:
 full redemption of the housing loan
 refinancing or re-mortgaging of the flat
 increase in loan quantum approved by the financier
 any change in loan term
Notification of Sale and Refund of CPF Monies

For any intended sale, transfer, assignment

and otherwise disposal of the flat:
 1 month before the completion of the
transaction
Submission of redemption statement of the
housing loan:
 4 weeks before the completion of
transaction
Refunding CPF Money
If below 55 years old:
Upon sale, transfer, assignment or disposal of flat, CPF savings
withdrawn and accrued interest to be refunded into the CPF
member’s account

If 55 years and above:

The Basic Retirement Sum shortfall, or the principal CPF
withdrawn for the property plus the accrued interest, whichever
is lower, must be refunded to his account
Penalty for False Declaration and
Misuse of Property

Furnishing of false statement, declaration, documents or information,

for purchase or the use of property for immoral, illegal or unauthorised
purpose:

CPF Board can seize and sell the property to recover the money CPF
savings withdrawn plus accrued interest
Lease Buyback Scheme (LBS)

To help low-income elderly households living in 4-

room and smaller HDB flats unlock part of their
housing equity while continuing to live in their homes,
and receive a lifelong income stream to supplement
their retirement income.
Eligibility Criteria
 All owners should be at least at the CPF Payout
Eligibility Age (65) or older ;
 At least one owner must be a Singapore Citizen;
 Gross monthly household income ≤ S$ 12,000;
 All flat types (excludes short-lease flats, HUDC, and
Executive Condominium units);
 No concurrent ownership of second property;
 All owners have lived in the flat for at least 5 years;
 Have at least 20 years of lease to sell for proceeds
How it Works?

Any excess after

topping up the
Retirement Account
Government tops up the (RA) can be
value of the unlocked withdrawn in cash,
housing equity from the up to a maximum of
HDB buys back tail- shorter lease, with an S$ 100,000. The full
end of the lease of amount up to S$20 000 RA is used to buy an
the flat, but leaving (for Singapore Citizens immediate annuity
the elderly owner a only) under the CPF LIFE
shorter lease (option scheme to provide a
to choose the length monthly income
of the lease to retain) stream for life
Private Property Scheme

Conditions:
 properties must be built on freehold; or
 leasehold, with remaining lease of at least 30 years
(enough to last the owner up to at least age 80)

What can savings be used to pay for ?

 Land and construction costs; and
 Legal and stamp duties, relating to the purchase of the
property
Private Property Scheme
First 5% of purchase price Cash from CPF member

Balance CPF savings (OA)

Executive Condominium Housing Scheme Act

First 5% of purchase price Cash from CPF member

Down payment Housing grant

(after 5% cash payment)

Balance CPF savings (OA)

Asset Enhancement

CPF Investment Scheme

(CPFIS)

CPFIS-OA (2.5%) CPFIS-SA (4%)

Savings can be invested in:

 Shares  Government, statutory board
 Loan stocks bonds
 Unit trust  Bank deposits
 Fund management  Endowment insurance and
accounts ILPs
 Gold  ETFs
CPFIS Eligibility Requirements

CPF member must :

Have savings of more than S$ 20,000 in his CPFIS-OA

and / or more than S$ 40,000 in his CPFIS-SA

Not an undischarged
Be at least 18 years old
bankrupt

From 1 October 2018, as a new CPFIS investor, CPF

members will need to take the Self-Awareness
Questionnaire (SAQ) from the CPF website before
they can start investing under CPFIS.
Application Procedures

CPFIS - OA

For settlement of
purchases or sales of CPF
member’s investments,
Open a CPF the agent back will liaise
Investment Account with CPF Board and the
with an agent bank product providers
(DBS, UOB, OCBC)

(Agent bank also keeps track

of the CPF member’s
investment holdings and
transactions)
Application Procedures

CPFIS - SA
CPF Board will liaise
with the product
No need to have a providers to settle
CPF Investment purchases and sales of
Account investments

CPF member will (CPF Board will

approach the product keep track of the
provider who will then investment
liaise with CPF Board holdings and
transactions)
CPFIS Top-Up Feature

Not allowed to top up CPF investment account

under CPFIS-OA Scheme unless it’s to take up
entitlements, eg rights issue or conversion of
entitlements

If so,

 top-up is through the agent bank

 top-up amount can’t be withdrawn even if
application is unsuccessful
CPFIS

Treatment of Investment Profits and Losses

Profits realised are not allowed to be withdrawn

Withdrawal of CPF Investments when CPF

member reaches Specified Withdrawal Age

Can apply to withdraw his investments in the CPFIS-OA and

CPFIS-SA if he has set aside the Full Retirement Sum or the Basic
Retirement Sum with sufficient property pledge in his Retirement
Account
CPFIS

Treatment of CPFIS Investments Upon Death

Investments in both accounts will go to the deceased member’s

estate for distribution.
Investments are not protected from creditors, whether or not
member is an undischarged bankrupt.
Family Protection
Dependents' Protection Scheme (DPS)

An optional term insurance scheme to provide

money (max S$46,000) to the insured CPF
member and his family:
 on his death; or
 on being permanently incapacitated
Automatically extended to Singapore citizens or
Singapore PRs between age 21 and 60, when their
first CPF contributions are made.
Premium is deducted from the Ordinary Account
and renewed automatically every year until 60
years old/ physically/ mentally incapacitated/
died, does not have enough CPF savings (SA of
$5,000), instructed CPF to not renew the coverage
or have no contribution to CPF account
Family Protection
Home Protection Scheme (HPS)

A mortgage reducing term insurance to cover the

outstanding housing loan of CPF members in the
event of their physical / mental incapacitation or
death
Compulsory if the CPF member uses his CPF
savings to pay his housing instalment payment
Health declaration required when applying for or
adjusting his HPS cover, such as all past and
current illnesses, any surgery previously
undergone or will be undergoing and any physical
or mental impairment.
Applicable only to public housing
Other Schemes Under CPF

Education Scheme

Savings in the Ordinary Account can be used to pay

for their own tuition fees or those of their children’s.

Applies only to full-time Government subsidised

degree and diploma courses offered by approved
educational institutions.
Other Schemes Under CPF

Workfare Schemes

Workfare
Income Supplement
Workfare Training
Scheme
Support Scheme
 Paid to older, low-wage
 To encourage older low-
workers to encourage them
wage workers to upgrade
to work and to improve their
their skills, and improve
retirement adequacy
employability
 In form of cash payments and
 Employers can claim up to
contributions to their
95% absentee payroll
Medisave Account.
 Yearly basis
Supplementary Retirement Scheme

A voluntary scheme that complements the CPF scheme to

encourage members to save for their retirement
SRS Participation

At least 18 years old

Singaporean, Singapore PR or foreigner

Capable of managing his own affairs

and not an undischarged bankrupt

Sound mind
Supplementary Retirement Scheme
Only one SRS account per participant with any SRS operators
(DBS, OCBC or UOB)
Once money has been withdrawn upon reaching the retirement
age, he’s not permitted to open a new account.

SRS Contribution

Any amount in cash, up to the SRS

contribution cap. Upon the participant’s
written authorisation, employers may
contribute into his account.
This is considered a taxable income and
must be declared by the participant
Supplementary Retirement Scheme
SRS Withdrawal

From 1 July 2015, SRS members can apply to their SRS operators to
withdraw their investments from their accounts without liquidating their
investments, subject to the types of withdrawals as specified in the SRS

Withdrawal may be made at any time but if it’s

before he statutory retirement age, as prevailing
when he made 1st SRS contribution:

 a 5% penalty applies; and

 100% of sum withdrawn is
liable for income tax
Supplementary Retirement Scheme
SRS Withdrawal

Maximum Amt 5%
withdrawal Subject penalty
Situation
period to tax
On or after statutory retirement 10 yrs 50% No
age, at first contribution
Before statutory retirement age NA 100% Yes
Upon death NA 50% No
Upon permanent incapacity or on NA 50% No
medical grounds
Bankruptcy NA 100% No
Full withdrawal by foreigner (  10 NA 50% No
years a/c maintenance)
Supplementary Retirement Scheme

SRS Investment

SRS contributions may be invested into all types of

investments, except for direct investment in property

Conditions for life insurance products:

Only single premium and recurrent single premium

products, encompassing annual and no-annual plans

Life cover (including TPD benefits) capped at 3 times the

single premium
Supplementary Retirement Scheme

Plans can allow for a contribution continuation

feature / benefit upon disability

Critical illness, health and long-term care insurance

products are excluded

Trust nomination is not allowed for life insurance

products
Appendix 13A
In summary…
You need to know and understand:

 The various CPF accounts

 The five pillars of financial security under the CPF
 Retirement adequacy
 Healthcare financing
 Property ownership
 Asset enhancement
 Family protection
THE END

FINISH
CMFAS Module 5: Rules &
Regulations for Financial
Advisory Services
Chapter 14: Financial Needs Analysis

5th Edition April

The information is provided on the basis that all

You are highly advised to read the Study Guide

provided by the Singapore College of
Insurance for your exam preparation and do not
solely depend on this e-learning module as this
is only a supplement to aid in your exam
preparation.

You are not allowed to print and download

Understanding 6 Stages of Needs

Benefits of Needs Analysis
Analysis

Stage 3 Stage 4
Stage 1 Analysing Develop
Establishing Financial Recommendation
Client-Rep Status
Relationship

Stage 5 Stage 6
Stage 2 Implement Review
Gathering Recommendation Periodically
Data
Key Learning Objectives

• Understand the benefits of conducting Needs

Analysis
• The 6 stages of needs analysis
Benefits of Conducting Needs Analysis

For the Client

Establishes a
Helps uncover long term
his needs relationship with
the adviser

More committed Less pressured

to his purchase to buy
Stages of Needs Analysis
STAGE 1
Establishing Client-
Rep Relationship

STAGE 6 STAGE 2
Review Gather Data
Periodically & Goals

STAGE 3
STAGE 5 Analyse &
Implement Evaluate
Recommendation Financial
Status
STAGE 4
Develop & Present
Recommendation
Stage 1:
Establishing Client-Rep Relationship

Introduce your
01 company

Explain the purpose Disclose your

of the meeting and 05 02 status
the sales advisory
process to your client

Explain the types of 04 03

Explain your role
financial advisory services
and investment products
you can provide
Stage 2:
Gathering Data, Including Goals

Protection Retirement

Client’s Financial Needs

Accumulation
Fact-Finding (using Life Insurance
Advisory Form
Relevant information to gather from client and his spouse, if
appropriate:
Personal details
Objectives and
Investment Preferences
Existing Insurance
Employment details
Number of Dependents
Financial Information
 Number of Years to provide:
 For Children:  Monthly income and
• 25 years for boys and
expenditure
22 years for girls
 For Parents and other
 Assets and liabilities
Dependants, their life  Net Cash Flow
expectancy:  Net Worth
• 81 years for male and  Committed/Fixed
85.4 years for females Expenditure
• Add 8 years to the life  Manageable/Variable
expectancy Expenditure
Financial Objectives & Investment
Preferences

Client’s Investment Preferences

The product he recommends must be appropriate for the client’s

risk tolerance and his investment time horizon

Risk Classification

Low Risk High Risk

Low Potential Return High Potential Return
Fact Finding
Investment
is easy to
manage

Keep pace Investment

with income
inflation
Areas of each year

Concern

Easy
Capital
access to
growth
cash
Fact Finding

Personal Priorities

Help him to prioritise his needs so as to be able to address his

needs better and recommend suitable products.

Retirement Needs

Help client to find out how much is needed by him and his
dependants monthly during his retirement, as well as the source
of the money. This has to be reviewed periodically.
Fact Finding

Research shown that most singles in Singapore

need about 50% to 60% of their pre-retirement
income to maintain the same living standard after
retirement.
For married couples with one retiree. the
percentage increases to 60% to 70%
Fact Finding

Protection Needs

In the event of untimely death, you need to ensure that your

client is able to meet and/or create income and cash for:

• Final Expenses
• Interim Family Income
• Long term Family Income
• Education
• Estate Settlement
Gathering Data, Including Goals

Saving Goals

Establish the purpose of a

savings fund, eg children’s
education.

From this, check out his existing

funds that can meet these goals and
determine what products can fill the
gaps in achieving his goals
Stage 3:
Analyze & Evaluate Financial Status

Identify & Quantify Client’s Needs

Evaluate client’s financial situation, and identify areas of potential

problems to will affect achieving his goals:

 existing large debts, if any  Provision for dependants

 existing life insurance policies  Assets preservation
 investment portfolio  Spending pattern
 income protection needs  Need for liquidity
Analyze & Evaluate Financial Status
Analysis of Goals and Objectives

For a better and more accurate assessment of the

client’s needs, consider :

How he has
prioritized his
Objective is short
Benefit is for client, needs and assess
term or long term,
or for others them to see if the
or both
client needs to re-
visit
Quantifying Needs

Get more specific information to help him quantify the amount

needed to meet his needs

Retirement Needs

Replacement Ratio
Expense Method
Method

Based on a percentage of the Based on the current level of

last-drawn pay the household expenses
projected into the future at
the expected rate of inflation
Quantifying Needs

Protection Needs

Multiple Approach Needs Approach

Based on the present Based on the estimated

value of his current stream income needed by
and growing at a certain dependants to maintain
future investment rate standard of living
Quantifying Needs

Accumulation Needs

Calculate future value of the targeted amount taking

into account the effects of inflation

NB Whichever method used, less off current funds that

can help meet the needs, ie get the shortfall
Stage 4:
Develop and Present Recommendation

Product Recommendation

Recommend the MOST

Recommend products appropriate products
ONLY if there’s a need based on the client’s
circumstances

Factors to consider:
 Product Suitability  Client’s financial situation –
 Client’s Objectives and Affordability
Needs  Tax consideration – be cautious!
Stage 5:
Implement Recommendation

Select the appropriate plans for

implementation upon your client's
instructions.

Present recommendation

Ensure that your client understands the products

recommended and the reasons for your
recommendations. Basis of recommendation should
be clearly documented in the fact find form
Implement Recommendation 620

To Meet Accumulation and Retirement Needs

Types of Products Risk of Capital Loss

Annuities Lower
Endowment Insurance Policies Lower
Money market securities (e.g. Treasury Lower
bills, commercial paper etc.)
Whole Life Insurance Policies Lower
Fixed Income Securities (e.g Bonds) Medium
Derivative Instruments (e.g. Options and Higher
Futures)
Equity Investments (e.g. Ordinary and Higher
Preferred Shares)
Investment-linked Policies (ILPs) Low to High
Structured Products Low to High
Unit Trusts Low to High
Universal Life Insurance Low to High
Implement Recommendation

To Meet Protection Needs

Types of Products Purpose

Term Insurance Policies Death cover for a fixed term

Whole life Insurance Policies Death cover for whole of life

Endowment Insurance Policies Death cover for a fixed term, and a lump sum at the end
of the term

ILPs Mainly for investing in unit trusts or similar investments

with some insurance protection

Universal Life Insurance Provides flexible death coverage, premium and premium
payment period.
Annuities Provides retirement income

Critical Illness Insurance Protects against contracting one of the covered critical
illnesses
Medical Expense Insurance Protects against risk of ill health and hospitalisation

Long-Term Care Insurance Protects against being unable to perform a specific

number of Activities of Daily Living (ADLs)
Implement Recommendation

Presenting Your Solutions

Explain the features AND the corresponding benefits of

the recommended products and how they fit into his
current situation

Document basis of recommendation

Stage 6:
Review with Client Periodically

Contact your client to conduct periodic

reviews of the plans to ensure continued
appropriateness

Monitoring of the plan ensures that the

customer is achieving his financial objectives.

You should advise your client to initiate a review

whenever there is a change in their objectives,
personal or financial circumstances.
Review with Client Periodically
Benefits of Periodic Regular Review

Initial recommendations may not be appropriate anymore, or

not adequate if there are changes to client’s circumstances

Client’s needs may be affected due to external developments

Addresses future needs of clients, hence building a long-term

relationship with them
In summary…

You need to know and understand:

 The benefits of conducting

needs analysis
 The six stages of needs
analysis
THE END

FINISH

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