ComplianceAsia

Client Alert: FMC Re-registration deadline with the MAS

ComplianceAsia — Fri, 18 Jan 2013 06:05:11 +0000

The deadline for re-registation with the MAS for all exempt asset managers is looming with only 3 weeks left before the 6th February final date for submission. This is a critical deadline. Firms that have not submitted an application by the deadline would be acting illegally if they provided asset management services in Singapore after the deadline.

We have noted that the numbers of exempt fund managers has remained worryingly high at 533 with only 29 registered fund management companies to date and a handful of licensed accredited / institutional investor fund management companies. This is not significantly reduced from the approximately 580 exempt fund managers prior to the introduction of the new rules. Allowing for both those new applications in progress and for the fact that the MAS takes a few days to update the publicly available list of financial institutions, there is a grave risk that MAS will be swamped with applications in the last few days of what has been a 6 month transitional period.

The MAS has informally commented to the industry that so far a high proportion of fund managers have not filed their applications, which we are sure is of concern to the regulator. Further we understand that the MAS has highlighted the risk of late submission – if the MAS does reject an application close to the final date for reasons such as incompleteness, the firms run the risk that they will lose their exemption and therefore will be in breach of Singapore law which requires an entity providing a regulated activity to be properly licensed or properly exempted. Persons with any doubt as to the seriousness of the issue should consult Singapore counsel.

The process is further complicated by the fact that the MAS must approve the submissions and generally very few applications are being processed (even for registered fund management companies) without at least 1 and sometimes more rounds of requisitions and further questions from the MAS. The forms themselves certainly do not represent the entire package of information that the MAS requires to process the applications.

To their credit the MAS case officers are working long hours to try and deal with their existing cases and process them as soon as possible, but the sheer numbers of firms involved seems to have created a log-jam.

For those firms that have not yet got their applications into the MAS, it is certainly something that should be addressed as a priority.

We strongly recommend firms do not delay.

Contact our people

Feel free to contact our people to discuss how we can assist your business in meeting the deadline.

Our Singapore Office Has Moved

ComplianceAsia — Thu, 18 Oct 2012 08:07:59 +0000

Our business is expanding and we needed more space, so we have moved.

Our contact details for our Singapore office are now:

ComplianceAsia Consulting Pte Ltd,
137 Telok Ayer Street #03-06
Singapore 068602
Tel: +65 6533 8834
Fax: +65 6221 2413

As always, you may contact us over the Web through our contact form.

Thomson Reuters: Reputational risk at heart of Standard Chartered’s New York settlement, officials say

Samantha Carrington — Mon, 20 Aug 2012 03:23:52 +0000

Aug 17 2012 Trond Vagen and Ajay Shamdasani

Standard Chartered’s $340 million settlement with New York’s Department of Financial Services has highlighted the cost of reputational risk and the need for clear lines of communication between a bank’s compliance and legal departments, officials have said.

The case has also highlighted the increasingly complex regulatory environment facing banks that operate across jurisdictions and in the U.S., with some experts saying the agreement was a wake-up call to the risks of breaching international sanctions.

Earlier this week Standard Chartered reached an agreement with the Department of Financial Services over allegations that the bank conducted illegal transactions worth billions of dollars with Iran. The regulator said Standard Chartered had agreed that the misconduct involved transactions totalling $250 billion, considerably more than the $14 million worth of illegal Iranian deals the bank admitted to last week. Full details of the negotiations have yet to emerge, but the bank said more information would be released soon.

Standard Chartered, which was apparently blindsided last week by the Department of Financial Services’ action, is still in settlement negotiations with other U.S. regulators.

‘Raw power’ of U.S. regulators

“The way in which the bank capitulated shows the raw power of the second tier regulators in the U.S.,” said Alex Duperouzel, managing director of ComplianceAsia, a compliance consultancy in Hong Kong. “The settlement is in absolute terms a very high number but relative to the damage that was done to their stock price it seems a good deal. It is a wake-up call for regional institutions that the regulatory playing field just got a lot more difficult with a greater number of participants likely to enter the arena.”

The speed with which Standard Chartered settled its case with the New York regulator showed the reputational damage that can be done to institutions that operate near the edges of the law, sources said.

“It’s all about perception and reputational risk — banks need to think more about reputational risk,” said a legal source in Hong Kong, who declined to be named as his firm had dealings with Standard Chartered. “Something may be legal but fail what regulators call the ‘smell test’ — if it doesn’t smell right it probably isn’t right. It makes you think, what other things are banks around the region doing that doesn’t pass the smell test?”

The New York regulator alleged the bank had conducted billions of dollars worth of illegal business with Iranian entities. The bank, however, said that it only broke the law in a few deals worth $14 million, a fraction of what was claimed by the Department of Financial Services. But after settling for $340 million — a figure much higher than the bank claimed the deals were worth — and admitting it broke the law, the bank has put its reputation at risk, the source said. He said the size of the fine reflected the fact that the bank admitted to some offences. “They had the bank over a barrel,” he said.

A spokeswoman for Standard Chartered in Hong Kong said the bank would continue to engage with the authorities involved in the matter, including the Department of Financial Services. “We cannot predict when this review and these discussions will be completed or what the outcome will be,” she said. The bank’s settlement, including the $340 million fine, was in the best interests of its shareholders, customers and staff, she said.

Jay Jhaveri, the Singapore-based head of Asian operations at World-Check (a Thomson Reuters company), said that the settlement was a reminder of the high cost of non-compliance. “If you believe the cost of compliance is high, the cost of non-compliance is higher, if not fatal,” he said. “Don’t question the cost of compliance; avoidance is not an option. Ask yourself ‘What are the costs of non-compliance and fighting regulatory action or a criminal prosecution?’ Doing so puts things in perspective.”

He said banks should assess compliance budgets and empower senior compliance staff to overrule decisions from other parts of the business. “Yes, compliance is a cost centre and is not responsible for the top line, but they are the guardians of a bank’s reputation,” he said.

Teamwork

Jhaveri said the $340 million fine was not excessive compared with the $17 billion drop in market value following the Department of Financial Services’ announcement last week, which he said was more worrying from a shareholder’s perspective. Fines were not, however, the only way to ensure compliance, he said.

“A lot of banks in our hemisphere would not survive $500 million or $1 billion being levied against them,” he said. “[But] if banks know that they could potentially be hit with a $400 [million] to $500 million fine, and in spite of that, continue breaching regulations and sanctions, then incarceration needs to be seriously considered. Where there is criminal wrongdoing, then senior management at the bank need to take responsibility.”

The New York regulator’s order against Standard Chartered alleged that the bank’s general counsel had been part of a plot to withhold information on the Iran trades from U.S. regulators, in a bid to allow the bank to carry on doing lucrative business with Iran while maintaining a U.S. presence. For some time this was technically legal under U.S. laws, but several sources said the bank’s compliance staff should have understood that such trades were unacceptable from a regulatory perspective. Some said this showed a disconnect and lack of communication between the bank’s compliance and legal departments.

“The best firms, or the ones that are most successful in avoiding major regulatory issues, are the ones that have two strong departments that work alongside each other,” said Duperouzel. There was, he said, much crossover between compliance and legal departments despite their different mandates.

Independence

Some highlighted the danger of having compliance report to the legal department, due to the risk of regulatory concerns not being communicated to the top. Scott Lane, principal and chief executive of Red Flag Group, a Hong Kong consultancy, said compliance should be independent and report to an audit committee.

“Typically, it is legal’s role to give direction on the legal aspects of the obligations on which compliance will then take and build a programme that manages the risk of failure to meet that obligation,” he said. “If legal takes a very wide view on an obligation — and construes it very broadly — this will flow through to compliance almost directly.”

Ideally, compliance should report independently to an institution’s corporate board rather than to a legal and compliance head, said Jhaveri. “Banks in Asia need to completely rethink the role of compliance managers,” he said. “You don’t typically find compliance staff sitting on boards of banks and they don’t have senior titles. That tells you what they [bankers] think of compliance.”

The case should, he said, remind other banks to review their internal processes. “When a lawyer or any professional knows something is criminal and then proceeds to advise you on putting structures and processes in place for you to avoid certain sanctions and regulations, that’s wrong in every sense of the word.

“If a bank like Standard Chartered can get it wrong, with all its robust systems and processes, other banks need to look at their processes and procedures and examine whether they have the right people in place and if such [compliance] professionals are empowered to take the right decisions. Most Asian banks see compliance as an impediment to doing business and so long as that continues, they are open to great risks.”

Sanctions risks

Standard Chartered could yet face disciplinary action in the UK and other jurisdictions, said Julian Russell, managing director of Pacific Risk, a boutique risk management firm in Hong Kong. He said that if any of the financial transactions the bank conducted were linked to Iran’s attempts to acquire strategic weapons technology – banned by the UN Sec Resolution 1737 (2006) – these money transfers would also become illegal “not only in the U.S. but also at the bank’s headquarters in the UK and any jurisdiction that can enforce Section 6 of the Resolution banning financial assistance”. He said this meant criminal charges could be laid against Standard Chartered executives in the UK.

“Compliance issues are not merely ‘technical’ administrative ones for bureaucratic entertainment by regulators, they are serious issues; in this case they are not money laundering issues of ‘aiding and abetting serious crime’, but instead potentially issues of ‘aiding and abetting war’,” Russell said.

In Hong Kong, where Standard Chartered has a large presence, the case should serve as a “major wake-up call” for compliance officers to examine Hong Kong’s United Nations Sanctions Ordinance, said Simon Young, associate professor and director of the Centre for Comparative and Public Law at Hong Kong University.

“There are now fifty two different sanctions laws that apply in Hong Kong and in-house counsel, regulators and compliance must be familiar with all of them,” he said. “There are more and more jurisdictions covered and what makes it complex is that the UN keeps updating old sanctions laws and one needs to track the new changes. It is a nightmare to keep up with all these sanctions laws — and each law is different so compliance really needs proper legal advice to stay on top of all the legal requirements.”

Young said the Standard Chartered case “would seem to teach the lesson that you must use honesty and good faith in seeing the possible connection to Iran”.

Phil Rodd, a partner at Ernst & Young in Hong Kong, said regulators were paying more attention to anti-money laundering and combating the financing of terrorism, and that this was a global trend.

“Financial institutions in Asia will be aware of the increased connectivity between regulators in different jurisdictions, through the supervisory colleges for global systemically important financial institutions and other communication channels,” he said. “Consequently, regulatory cases in one country will lead to increased scrutiny on the same topic in other countries.”

Lessons

Standard Chartered’s settlement was likely to worsen the relationship between regulators and the industry, said Duperouzel. He said the lack of transparency with which the settlement was reached meant there was little opportunity for the industry to learn from the bank’s mistakes. Apart from a short statement revealing the terms of the settlement, the Department of Financial Services has made no other public comments since its first order against the bank.

“Many U.S. cases are settled without the opportunity for the industry to learn from the issue and so far this seems like a poster child for that view,” he said.

“Many of these cases begin to sound like corporate extortion when there is a lack of transparency regarding the fines. One the biggest issues that is probably going to come from the large settlement is that it plays into the hands of those that want relationships with regulators to be just like any litigious case.

“Regulators will not ultimately get a compliant industry unless they can obtain the cooperation of those that they regulate. Settlements like this suggest there is little value in cooperation and a strong case for going to court when a regulator comes knocking.”

(Additional reporting by Martin Coyle in London)

Trond Vagen is North Asia editor for Compliance Complete, based in Hong Kong. Ajay Shamdasani is a staff writer with Compliance Complete in Hong Kong. He covers regulatory developments in Hong Kong, India, South Korea and Japan, as well as money laundering, fraud and corruption regionally.

This article is taken with permission from Thomson Reuters Accelus.

16/08/2012 – Additional Session for Regulatory Briefing

ComplianceAsia — Mon, 13 Aug 2012 07:14:36 +0000

Thursday, 16 August 2012

Due to the high response rate for our briefing on Wednesday, we have decided to offer the same briefing on the following morning for those who cannot make the Wednesday briefing.

As part of our series of regulatory briefings we are pleased to host a seminar on the MAS newly implemented enhanced regulatory regime for fund management companies (FMCs).

As part of this seminar we will cover topics such as:

Who must make application to the MAS;
The different categories of registration;
Personnel requirements under the new rules;
Internal control expectations under the new rules;
Audit and risk management requirements;
Insurance; and
The registration process.

The seminar will be at:

Gilmour Room
Singapore Cricket Club;
Connaught Drive Singapore 179681

Registration:	8.00am
Presentation:	8.30pm (sharp)

We hope you can join us. Demand for this event has already been strong so please register as early as possible to reserve your place.

There will be no cost for current clients for this event. Other firms will be charged S$25 payable at the door. Singapore CPT/CPD will apply to this for all license types.

15/08/2012 – Regulatory Briefing – MAS Enhanced Regulatory Regime for Fund Management Companies

ComplianceAsia — Thu, 09 Aug 2012 01:57:59 +0000

Wednesday, 15 August 2012

As part of our series of regulatory briefings we are pleased to host a seminar on the MAS newly implemented enhanced regulatory regime for fund management companies (FMCs).

As part of this seminar we will cover topics such as;

Who must make application to the MAS;
The different categories of registration;
Personnel requirements under the new rules;
Internal control expectations under the new rules;
Audit and risk management requirements;
Insurance; and
The registration process.

The seminar will be at;

Singapore Cricket Club;
Connaught Drive Singapore 179681

Registration:	4.00pm
Presentation:	4.30pm (sharp)
Drinks:	6.00pm to 7.00pm

We hope you can join us, we expect demand for this to be strong so please register early.

There will be no cost for current clients for this event. Other firms will be charged S$25 payable at the door. Singapore CPT/CPD will apply to this for all license types.

MAS Update on Fund Manager Rules in Singapore

ComplianceAsia — Mon, 30 Jul 2012 04:26:04 +0000

On the launch of the MAS Annual Report 2011/12 on 25th July 2012 Ravi Menon, Managing Director from the MAS made the following comment as point 39 of his written press release:-

“All fund management companies will have to meet the enhanced competency, business conduct, and capital requirements by August. Those with assets under management greater than S$250m will have to be licensed, while those below this threshold may operate under the ‘Registered Fund Management Company’ regime, which will replace the existing ‘Exempt Fund Manager’ regime.”

We strongly urge all of our asset management clients which have not yet begun planning for this transition to contact us to determine how we may assist.

Client Information Sheet: Financial Advisory Industry Review

ComplianceAsia — Wed, 20 Jun 2012 04:06:34 +0000

The Monetary Authority of Singapore (MAS) has begun a review process of the financial advisory industry. Some financial advisory firms have already received questionnaires from the MAS.

The attached information sheet aims to identify some key issues in this review.

Please open the attached file for more details:
Client Information Sheet: Financial Advisory Industry Review (pdf only)

14/6/2012 – Breakfast Briefing

ComplianceAsia — Thu, 31 May 2012 10:07:33 +0000

Please note that the breakfast briefing has been postponed. We have not yet set a new date, so please monitor our website for when our next briefing will be.

“Internal Control Considerations for Sponsors and Type 6 Licence Holders”

As part of our series of compliance breakfast briefings for compliance officers and those responsible for the compliance function in Hong Kong we are pleased to host a seminar where we will discuss the appropriate internal control environment for sponsors on the Hong Kong Stock Exchange and Type 6 license holders.

Philippa Allen, CEO of ComplianceAsia, and a panel of guest speakers will discuss the following questions, as well as being open to Q&A from the floor;

What are the sponsor’s obligations under the new SFC proposals?
What lessons can be learnt from the recent cases for Type 6 holders?
What constitutes proper legal due diligence?
What financial due diligence should be done?
What internal controls and compliance measures should be in place?

The meeting will be at the Mandarin Oriental in Connaught Road with registration from 7:30am and the talk beginning at 8:00am sharp and running until 9:00am.

We hope you can join us, we expect demand for this to be strong so please register early. Cost is HK$700 including breakfast. HK CPT will apply to this for all license types.

For registration, please send a request through our contact form.

Client Information (Singapore): Consultation on Proposed Revisions to the Regulatory Capital Framework for Holders of Capital Markets Services Licences

ComplianceAsia — Wed, 25 Apr 2012 06:32:39 +0000

On 3 April 2012, MAS released a consultation paper on proposed changes to be made to the regulatory capital framework for capital market services licensees (CMSLs). The proposed changes seek to unify and enhance the requirements across all CMSLs.

The attached document is ComplianceAsia’s overview of these changes.

Client Information Sheet on Singapore Capital Framework April 2012

Easter Statutory Holidays

ComplianceAsia — Thu, 05 Apr 2012 06:39:48 +0000

Our offices in Hong Kong and Singapore will be closed Friday 5th of April 2012. Our office in Hong Kong will be closed Monday 9th of April as well.