MR. ANDREW MAK YEN-CHEN MS. YONG CHANG LING
Partner Legal Associate (Corporate Practice)
T: (65) 6322 2210 T: (65) 6322 2237
F: (65) 6534 0833 F: (65) 6534 0833
E: andrewmak@loopartners.com.sg E: yongchangling@loopartners.com.sg
Loo & Partners LLP
143 Cecil Street, Level Ten, GB Building
Singapore 069542
www.loopartners.com.sg
On 3 June 2015, the Monetary Authority of Singapore (“MAS”) issued a Consultation Paper on the Proposed Amendments to Regulatory Framework for Intermediaries Dealing in OTC Derivative Contracts, Execution-Related Advice, and Marketing of Collective Investment Scheme. Pursuant to the proposed amendments to the Securities and Futures Act (Chapter 289) of Singapore mooted in February 2015, a capital markets services licence will be required for intermediaries to deal in over-thecounter derivatives contracts (“OTC intermediaries” and “OTC derivative contracts”), which will be a “capital market product”, unless exempted. The proposed framework sets out the prescribed capital and financial, business conduct, and representative notification requirements to be imposed on OTC intermediaries.
Given the extensive scope of the Consultation Paper, this update will only highlight the main features of the business conduct requirements under the proposed framework.
1. Risk management and controls
OTC intermediaries are required to implement risk management systems and controls to manage their operations and activities, such as, effective written policies on all operations, compliance function and arrangements, measures to identify, address and monitor trading and business activities risks, adequate internal audit, and segregation of duties to mitigate potential conflicts of interests.
2. Advertisement
Advertising materials published or circulated by OTC intermediaries must not contain any inaccurate or misleading statement or presentation, or any exaggerated statement or presentation that is calculated to exploit an individual’s lack of experience or knowledge.
3. Risk disclosure
MAS proposes that prior to the execution of any OTC derivative contracts, a risk disclosure document shall be provided to and acknowledged by the customer in writing. The document will disclose material risks of the product, and whether the OTC intermediary is acting as a principal or an agent.
4. Record keeping
OTC intermediaries shall record information in respect of their OTC derivative transactions, such as, customer identification information, documents relating to the establishment of business relations, information necessary to reconstruct the derivative transaction, payment and interest received, and the daily value of each outstanding derivative transaction.
5. Segregation of customers’ moneys and assets
A customer must be offered the choice of an omnibus segregation or an individual client segregation model in respect of his moneys and assets for centrally-cleared OTC derivatives. For the latter model, OTC intermediaries must disclose the costs associated with and the level of protection accorded vis-à-vis the omnibus segregation model. The proposed framework seeks to enhance legal certainty, and strengthen Singapore’s OTC derivatives market.