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MAS to Close AML Loopholes by Revising Requirements for Single Family Offices

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The Monetary Authority of Singapore (MAS) is proposing a rule that would close AML loopholes by standardizing licensing exemption criteria for single-family offices (SFOs). According to the criteria, firms would have to be family-owned and subject to more uniform AML/CFT oversight in order to be exempt from having to apply for a capital markets services (CMS) license under the Securities and Futures Act (SFA).

According to MAS, “With the strong growth of SFOs in Singapore, one key risk … is potential money laundering … MAS will take additional measures to strengthen our surveillance and defence against potential ML risks posed by SFOs.” The consultation paper proposing the new framework was released on July 31, 2022. MAS is seeking feedback from interested parties by September 30, 2023, on the potential revision’s benefits and risks.

Why SFO Fund Management Requires AML Safeguards

An SFO is a firm responsible for helping families manage their wealth. Each office serves one family, providing services that include helping members by: 

  • Investing money according to their values.
  • Creating a succession plan for passing wealth on. 
  • Day-to-day management of the family’s wealth.

According to Deloitte, SFOs have become more popular in Asia within the past decade. This is attributed to rising wealth in many countries, particularly in China. 

Because most single-family offices are family-owned or controlled, they don’t usually deal with third-party funds. MAS has not historically subjected these SFOs to the same AML requirements as other financial institutions. Currently, any SFO meeting the requirements of paragraph 5(1)(b) of the Second Schedule of the Securities and Futures (Licensing and Conduct of Business) Regulations is exempted from MAS licensing or AML regulation without having to submit an application – as long as they provide a legal opinion that they qualify for the exemption.

Still, each SFO manages family assets worth millions. Because of the volume of funds that pass through SFOs and the activities they involve – including investment, vehicle purchases, and real estate – MAS wants to ensure adequate AML oversight of the sector despite exemptions.

How MAS Proposes to Bolster SFO Requirements

Since the current law doesn’t define SFOs, the exemption process is undertaken case by case. By defining the features of a qualifying SFO, the proposed frameworks’ standardized criteria would create a class exemption for all firms within their scope. This would ensure a consistent and reliable process.

Under the proposed changes, a qualifying SFO must:

  1. Be family-owned – including connected trusts and organizations.
  2. Only manage funds for the family and certain key employees.
  3. Be incorporated in Singapore. 
  4. Designate a Singapore-based employee as the MAS point of contact.
  5. Maintain a business relationship with an MAS-regulated firm, bringing the exempted SFO under MAS AML/CFT oversight.

In addition, SFOs would be required to notify MAS of their exemption within seven days of beginning to operate. This would include a legal declaration and signed statements by all family members and owners.

Finally, exempted SFOs would be subject to annual reporting requirements.

Ensuring Compliance: Next Steps for Firms

Singapore-based SFOs should seek legal advice on whether they meet the listed exemption criteria, even if they qualify under current regulations. The consultation process also provides firms an opportunity to voice their opinion on the proposed frameworks’ strengths and drawbacks. Firms may wish to consult the paper and contribute their perspective on the proposed changes by September 30. 

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Originally published 17 August 2023, updated 17 August 2023

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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