The Monetary Authority of Singapore (MAS) introduced a new Financial Services & Markets (FSM) Bill 2022 to parliament on 14 February, which is designed to complement its existing entity and activity-based regulation and enhance its agility and effectiveness in addressing financial sector-wide risks in a rapidly changing and increasingly integrated environment.
Currently, MAS regulates the financial sector by entity and activity through various MAS-administered legislation. The Monetary Authority of Singapore (MAS) Act also contains provisions that impose requirements on different classes of financial institutions (FIs) across the financial sector in specific areas.
Following a public consultation, the government proposes to move these FI-related provisions from the MAS Act to the FSM Bill, while new powers will be introduced to address emerging risks and challenges that impact institutions across the financial sector.
Key provisions in the new FSM Bill include:
- Harmonised and expanded powers to issue Prohibition Orders (POs) – MAS issues POs to bar persons from conducting certain activities or from holding key roles in FIs for a period of time. POs are issued in cases of serious misconduct, to deter misconduct and preserve trust in Singapore’s financial sector.Currently MAS can only issue POs against persons specified in certain MAS-administered Acts and cannot issue POs to persons outside the scope these Acts even if they have committed serious misconduct in the financial sector. It is now proposing to introduce a harmonised and expanded power to prohibit any person who is not fit and proper from engaging in any activity regulated by MAS and performing a prescribed list of key roles and functions in the financial sector. This will consolidate MAS’ powers to issue POs under the FSM Bill and enable a consistent sector-wide approach when taking enforcement action against misconduct.
- Enhanced Regulation of Virtual Asset Service Providers (VASPs) for Money Laundering and Terrorist Financing (ML/TF) Risks – The Financial Action Task Force (FATF) adopted enhanced standards for VASPs in June 2019 and requires countries to regulate VASPs for money laundering and terrorist financing risks. To mitigate the risk of regulatory arbitrage (where no single jurisdiction has sufficient regulatory hold over a specific VASP due to the internet and digital nature of its business), the enhanced FATF standards require VASPs to be at least licensed or registered in the jurisdictions(s) where they are created.To fully align with the enhanced FATF standards and mitigate the reputational and ML/TF risks, the FSM Bill will regulate all VASPs created in Singapore that provide virtual asset services outside of Singapore. VASPs that provide digital token (DT) services outside Singapore, will be regulated as a new class of FIs, with licensing and ongoing requirements to ensure that MAS has adequate supervisory oversight over them. DT services include:
- Dealing in DTs.
- Facilitating the exchange of DTs.
- Inducing or attempting to induce any person to enter into or to offer to enter into any agreement for or with a view to buying or selling any DTs in exchange for any money or any other DTs (whether of the same or a different type).
- Accepting DTs for the purposes of transmitting, or arranging for the transmission of, the DTs.
- Safeguarding of a DT or DT instrument, where the service provider has control over the DT or over one or more DTs associated with the DT instrument.
- Financial advice relating to the offer or sale of DTs.
MAS considers all transactions relating to DT services to carry higher inherent ML/TF risks due to their anonymity and speed. The FSM Bill will regulate VASPs primarily for ML/TF risks. The FSM Bill will introduce general powers over VASPs, including licensing requirements, powers to conduct AML/CFT inspections and render assistance to domestic authorities and MAS’ foreign AML/CFT supervisory counterparts.
MAS will impose licensing and ongoing requirements on VASPs to ensure that such VASPs have a meaningful presence in Singapore and that MAS has adequate supervisory oversight over them. AML/CFT requirements imposed on VASPs will be aligned with the requirements imposed on digital payment token service providers regulated under the PS Act.
- Harmonised power to impose requirements on Technology Risk Management (TRM) – To ensure safety and soundness of the IT systems used by FIs to deliver financial services, MAS will consolidate powers to impose requirements on TRM by introducing powers centralised within the FSM Bill that apply to any FI or class of FIs. To ensure that the maximum penalty for any breaches of TRM requirements is commensurate with the most serious types of breaches that can be committed by FIs, MAS proposes that the maximum penalty for breaches of Regulations and Notices issued be S$1 million.
- Statutory protection from liability for mediators, adjudicators, and employees of operators of Approved Dispute Resolution Schemes – Currently an adjudicator, employee, officer or representative of the Financial Industry Disputes Resolution Centre Ltd (FIDReC) is contractually conferred certain protection from claims by a complainant or FI. The FSM Bill will provide statutory protection from liability where they act with reasonable care and in good faith, which will strengthen the confidence and autonomy of these individuals when they carry out their duties.