Navigating the Capital Markets Services (CMS) Licence and the Financial Adviser’s Licence

Ingenia consultants
February 19, 2021
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Laws such as the Securities and Futures Act as well as the Financial Advisers Act have been crafted, modified, and updated to help regulate the financial sector in Singapore. These laws are combined to form a single modular licensing model and an integrated regulatory framework that provides industry participants with a sound and transparent set of rules. This framework was created to ensure that standards established across all institutions providing regulated financial services would remain uniform with consistent requirements while at the same time affording the financial services industry the flexibility of accommodating high-level innovation among its participants.

Due to the fact that the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA) form a unified licensing model, a financial intermediary only needs to hold a single license. Should the intermediary’s business activities encompass multiple regulated activities, the intermediary needs just one license that encompasses the relevant regulated activities. The primary licenses available[1] are the capital markets services (“CMS”) license and the financial advisers license.

The following activities require a CMS licence under the SFA:

  • Dealing in capital markets products: Dealing in capital markets products in essence is brokerage.
    Capital markets products include securities, units in a collective investment scheme (CIS), over-the-counter (OTC) derivatives, exchange-traded derivatives and spot foreign exchange for the purposes of leveraged foreign exchange trading.
  • Advising on corporate finance: Corporate finance adviser activities may include giving advice on the laws or regulatory requirements on fund-raising by an entity, trust or collective investment schemes (CIS), giving advice on the offer to acquire or to dispose of capital markets products and/or giving advice relating to an arrangement, reconstruction or take-over of a company or a business trust, or any of its assets or liabilities
  • Fund management: A company who wishes to raise and manage third party investors’ funds in a collective investment scheme or invest them in segregated account into capital markets products.
  • Real estate investment trust management: A company that manages a REIT, which is a collective investment scheme (CIS) constituted as a trust that invests primarily in real estate and real estate-related assets specified in the MAS Code on Collective Investment Schemes, and is listed on an approved exchange
  • Product financing: The activity of providing financing to another person to buy or subscribe for capital markets products listed or to be listed on an organized market will require licensing
  • Providing credit rating services : A company that disseminates or distributes an opinion about the creditworthiness of a rating target through the use of a defined ranking system of rating categories is conducting credit rating activities. The activities involved in the preparation of a credit rating include:
    • analysing information or data;
    • formulating or drafting an opinion on the creditworthiness of a rating target;
    • evaluating or approving a credit rating;
    • monitoring or reviewing a credit rating which has been issued;
    • formulating or drafting credit rating methodologies or models; and
    • evaluating or approving credit rating methodologies or models.
  • Providing custodial services : The provision of custodial services for may include one or more of the following functions:
    • settlement of transactions relating to the specified products;
    • collecting or distributing dividends or other pecuniary benefits derived from ownership or possession of the specified products;
    • paying tax or other costs associated with the specified products;
    • exercising rights, including without limitation voting rights, attached to or derived from the specified products;
    • any other function necessary or incidental to the safeguarding or administration of the specified products with certain exclusion

Any financial intermediary that wishes to engage in any of these activities must obtain the Capital Markets Services License (CMS License) unless there is a specific exemption which applies. Should the intermediary wish to engage in multiple activities mentioned in the list, its Capital Markers Services License should include each of the required activities. Only a corporation can be granted the CMS License. If an individual intends to act as a representative of the CMS License holder in conducting any of the above activities, the individual will need to acquire the related CMS Representative’s License, unless there is an exemption.

Where multiple regulated activities are carried out, a CMS licence for multiple activities can be obtained, where required, with an exemption from the requirement to hold a financial adviser’s licence to carry out the regulated activities under the FAA. Each financial intermediary is required to obtain a license prior to the commencement of its regulated activities. Only intermediaries who are eligible for certain exemptions do not require a license.

Let’s the example with crowdfunding. If an intermediary wish to be a licensed crowdfunding platform, it depends on the business model of the intermediary. While most crowdfunding activities fall within peer to peer lending, the exact mechanics will determine what sort of license to be obtained. The MAS has published and FAQs providing some guidance on lending-based crowdfunding. This FAQs can be found here.

https://www.mas.gov.sg/regulation/faqs/faqs-on-lending-based-crowdfunding

However, do note that some activities may have exemptions for example invoice financing. Certain types of invoice financing may fall under certain exemptions. Thus, for further clarity, we do recommend having a chat with our licensing professionals who will help analyze your business model and provide appropriate advice on which license to seek for.

The MAS has published the following admission criteria for a license application:

The financial intermediary must have the following:

  • Minimum of 2 directors, at least one is resident in Singapore.
  • Chief Executive Officer with least 10 years of relevant experience and is resident in Singapore.
  • Minimum of 2 full-time Singapore-based individuals for each regulated activity (except REIT management). Such individuals are required to be appointed as representatives under the SFA.

The Monetary Authority of Singapore (MAS), that is the regulator in Singapore generally responsible for governing and enforcing financial markets regulations, is in charge of applications for (and the supervision of) capital markets intermediaries. As part of the application process, the MAS will be assessing each license application by taking into account the following factors:

  • Fitness and propriety of the applicant, its shareholders and directors;
  • Track record and management expertise of the applicant and its parent company or major shareholders;
  • Ability to meet the minimum financial requirements prescribed under the SFA;
  • Strength of internal risk management and compliance frameworks; and
  • Business model / plans and projections and the associated risks.

Whilst the MAS has published several guidelines to provide more clarity on the license application process, each financial intermediary’s model and activities may be different from another. Our licensing professionals will be able to provide you with appropriate advice to help you navigate the license application process.

[1] Additional licences are available under the Securities and Futures Act such as for an exchange, a recognised market operator or a benchmark administrator.

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