Singapore Enhances Oversight on Family Offices and Hedge Funds, Tightening Reporting Requirements

Key Takeaway

• Singapore tightens oversight on family offices and hedge funds, introducing stricter reporting requirements and closing dormant firms.
• MAS to repeal the RFMC license by August 1, migrating hedge funds with assets up to $250 million to a stricter regime.
• Enhanced due diligence measures aim to bolster Singapore's financial integrity amid recent money laundering scandals.

Singapore Tightens Financial Oversight

Singapore authorities are increasing scrutiny on family offices and hedge funds, demanding more information and stepping up closures of dormant firms. This move follows a series of scandals that exposed weaknesses in the financial hub's oversight. Since March, various agencies have introduced additional requirements and accelerated the removal of inactive corporate entities. Family offices with tax exemptions received new forms in May, requiring detailed information to be submitted by the end of June. The Monetary Authority of Singapore (MAS) confirmed in March that it would repeal a licensing regime for hedge funds with assets up to $250 million by August 1, migrating them to a stricter reporting framework.

The push for tighter regulations comes in the wake of criminal cases that highlighted the challenges of managing the influx of foreign wealth into Singapore. One of the accused in a recent S$3 billion ($2.2 billion) money laundering case was linked to family offices that had been granted tax exemptions. Richard Crowley, assistant professor of accounting at Singapore Management University, noted, "Having more (and ideally more varied) data helps with potentially detecting undesirable activity earlier, which can help to minimize any loss of economic impact or reputation that illegal activity may cause."

Family offices must now confirm that their beneficial owners, directors, representatives, and shareholders have never been involved in money laundering or terrorist financing offenses. They must also ensure that their assets comply with domestic capital control regulations and that the fund management company is not facing regulatory actions globally. Additionally, these offices must maintain an account with a private bank based in Singapore and provide citizenship and country of birth details for ultimate beneficiaries and relevant staff members.

Enhanced Due Diligence

In December, MAS announced plans to enhance its processes to broaden the scope of due diligence checks and take "swift action" to remove incentives from firms if adverse activities were detected. A spokesperson for MAS stated, "The updated annual declaration forms form part of the enhancements," adding that more implementation details and the regulator's response to industry feedback would be published later this year.

Last October, MAS indicated plans to eliminate the Registered Fund Management Company (RFMC) license category, which has been used by many hedge funds since 2012, and migrate them to the Licensed Fund Management Companies (LFMC) regime. The agency set an August deadline for this transition. "RFMCs have similar admission criteria and business conduct requirements as LFMCs," MAS said in October. "However, RFMCs are subject to lighter requirements in terms of the frequency and granularity of regulatory reporting."

Singapore's Accounting and Corporate Regulatory Authority (ACRA) has also been reaching out to directors of inactive companies to shut them down. ACRA noted that 17,000 inactive companies had been struck off the register in the five years ending 2023, with efforts ramping up since then. "ACRA has been stepping up efforts to strike off inactive companies," a spokesperson said, defining these as firms that it has reasonable cause to believe are no longer carrying on business. "This is part of ACRA’s ongoing efforts to reduce the risks of inactive companies being misused for illicit purposes."

Impact on Smaller Firms

The combined efforts to tighten rules for corporate service providers and remove inactive companies are likely to increase costs for smaller firms operating in Singapore. Service providers, who requested anonymity due to client confidentiality, noted that while these measures would add to operational costs, they would also improve the quality of data provided to authorities and close loopholes that allowed low-quality firms to operate.

The increased regulatory scrutiny aims to bolster Singapore's reputation as a financial hub while mitigating risks associated with illicit activities. The move is expected to enhance the overall integrity of the financial system, ensuring that only compliant and high-quality firms operate within the city-state.

Street Views

• Richard Crowley, Singapore Management University (Cautiously Optimistic on Singapore's regulatory measures):

  "Having more (and ideally more varied) data helps with potentially detecting undesirable activity earlier, which can help to minimize any loss of economic impact or reputation that illegal activity may cause."