Singapore authorities are increasing their scrutiny of family offices and hedge funds in response to recent scandals that have exposed weaknesses in the country’s financial oversight. To address these concerns, the government has imposed additional requirements on investment firms and has been actively closing dormant companies.
Since March, regulatory agencies have been implementing stricter rules and procedures, with a particular focus on gathering more detailed information from family offices and hedge funds. In May, family offices that enjoy tax exemptions were required to complete new forms and submit them by the end of June. Similarly, the Monetary Authority of Singapore announced in March that it would replace a licensing regime for hedge funds with assets up to $250 million, instead adopting a more stringent reporting framework by August 1st.
These measures highlight Singapore’s commitment to enhancing its regulatory framework and ensuring greater transparency in the financial sector. By demanding more information and actively closing dormant firms, authorities are aiming to strengthen oversight and bolster investor confidence.
Singapore is intensifying its oversight of financial institutions due to recent criminal cases that have highlighted the challenges of regulating the influx of foreign wealth into the city-state. One of the individuals involved in a recent S$3 billion ($2.2 billion) money laundering case was connected to family offices that had been granted tax exemptions.
Richard Crowley, an assistant professor of accounting at Singapore Management University, emphasized the importance of having more diverse data to detect potentially illicit activities earlier. This is crucial in order to minimize any negative economic impact or damage to the country’s reputation.
To enhance transparency, family offices with tax exemptions are now required to submit annual forms to the Monetary Authority of Singapore (MAS) confirming that their beneficial owners, directors, representatives, and shareholders have never been involved in money laundering or terrorist financing offenses, whether by conviction, charges, or any other means.
In addition, they need to ensure that the assets they manage comply with domestic capital control regulations, and that the fund management company is not facing any regulatory actions from any authority worldwide.
According to the forms required by many firms before June 30, family offices are required to have an account with a private bank in Singapore. They also need to provide the citizenship and country of birth information for both the ultimate beneficiaries and relevant staff members.
A spokesperson for the Monetary Authority of Singapore (MAS) stated that in December, they had already indicated that their processes would be improved to expand the scope of due diligence checks. They also mentioned that they would take prompt action to remove incentives from firms if any adverse activities were found.
“The updated annual declaration forms are part of these enhancements,” the spokesperson said. They also mentioned that more implementation details and the regulator’s response to industry feedback would be published later this year.
The monetary authority has tightened the tax incentive process by implementing stricter due diligence checks for a wider range of individuals and entities. In addition, a panel has been appointed to screen applicants for potential risks of money laundering and terrorism financing.
According to the authority, single family offices associated with individuals facing charges will no longer be eligible for tax incentives.
The MAS had previously announced its intention to reduce the Registered Fund Management Company (RFMC) license category, which has been widely used by hedge funds since 2012, and transition them to a more rigorous Licensed Fund Management Companies (LFMC) regime. The agency set an August deadline for this transition in March.
In explaining the rationale behind this move, the MAS stated that RFMCs and LFMCs have similar admission criteria and business conduct requirements. However, RFMCs are subject to lighter regulatory reporting requirements in terms of frequency and detail.
According to sources familiar with the matter, Singapore’s Accounting and Corporate Regulatory Authority (ACRA) has been taking measures to close down inactive companies. This approach, while not entirely new, is said to be on a larger scale than previously seen. In the past five years leading up to 2023, ACRA had already struck off 17,000 inactive companies from its register. However, efforts have been intensified since then.
In a statement, a spokesperson for ACRA explained that the authority has been actively working to shut down these inactive companies. They defined inactive companies as those that ACRA has reasonable grounds to believe are no longer conducting business. The spokesperson emphasized that this initiative is part of ACRA’s ongoing efforts to minimize the risks associated with inactive companies being exploited for illegal activities.
According to unidentified service providers who requested confidentiality to protect client information, the implementation of stricter regulations for corporate service providers in Singapore, along with other measures, is expected to increase costs for small businesses operating in the country. However, these service providers also noted that the new regulations would enhance the accuracy of data provided to authorities and eliminate loopholes that had previously enabled low-quality firms to operate in Singapore.