FAA Part II — Licensing of Financial Advisers¶
Overview¶
Part II of the Financial Advisers Act (Sections 3-22) establishes the licensing framework for persons carrying on a business of providing financial advisory services in Singapore. No person may act as a financial adviser unless they hold a financial adviser's licence granted by MAS, or qualify for an exemption under Section 23.
Prohibition Against Unlicensed Activity (Section 6)¶
General Prohibition¶
Section 6(1) states that no person shall act as a financial adviser in Singapore in respect of any financial advisory service unless the person:
- Holds a financial adviser's licence; or
- Is an exempt financial adviser under Section 23
A contravention of this prohibition is a criminal offence punishable by a fine not exceeding $75,000 and/or imprisonment for a term not exceeding 3 years.
What Constitutes "Acting as a Financial Adviser"¶
A person is deemed to act as a financial adviser if they carry on a business of providing any of the following services: - Advising others concerning any investment product - Issuing analyses or reports concerning investment products - Marketing any collective investment scheme - Arranging any life policy
The key test is whether the activity constitutes a business — isolated or incidental advisory activities may not trigger the licensing requirement, though this must be assessed carefully.
Application for a Licence (Sections 8-12)¶
Application Process (Section 8)¶
An application for a financial adviser's licence must be made to MAS in the prescribed form and manner, accompanied by:
- The prescribed application fee
- Particulars of the applicant's business activities
- Details of the applicant's directors, chief executive officer, and shareholders
- Information on the applicant's financial position
- Such other information as MAS may require
Eligibility Criteria (Section 9)¶
MAS considers the following factors when assessing a licence application:
- Fitness and propriety — Whether the applicant (and its officers) satisfies the Guidelines on Fit and Proper Criteria, including honesty, integrity, and reputation
- Financial soundness — Whether the applicant has adequate financial resources to conduct the business (minimum base capital requirements apply)
- Competence — Whether the applicant has the necessary expertise and infrastructure
- Business track record — The applicant's history of compliance and business conduct
- Public interest — Whether it would be contrary to the public interest to grant the licence
Base Capital Requirements¶
Licensed financial advisers must maintain minimum base capital as prescribed: - Advising on investment products: S$150,000 minimum base capital - Arranging life policies only: S$50,000 minimum base capital - Higher capital requirements may apply depending on the scope of advisory services
Grant or Refusal (Section 10)¶
MAS may grant a licence subject to conditions, or refuse the application. MAS must notify the applicant of its decision in writing and, in the case of a refusal, provide reasons.
Conditions of Licence (Sections 13-15)¶
Power to Impose Conditions (Section 13)¶
MAS may impose conditions on a financial adviser's licence at the time of grant or at any subsequent time. Conditions may relate to:
- The type of financial advisory services the licensee may provide
- The classes of investment products the licensee may advise on
- Capital adequacy and financial requirements
- Operational requirements (e.g., insurance coverage, compliance arrangements)
- Any other matter MAS considers necessary for the protection of clients
Variation of Conditions (Section 14)¶
MAS may at any time vary, add to, or revoke any condition of a licence. The licensee must be given an opportunity to be heard before any adverse variation.
Obligation to Comply¶
Failure to comply with any condition of a licence is an offence punishable by a fine not exceeding $50,000. MAS may also revoke or suspend the licence for non-compliance.
Revocation and Suspension (Sections 16-19)¶
Grounds for Revocation (Section 16)¶
MAS may revoke a financial adviser's licence if:
- The licensee has ceased to carry on business
- The licensee has contravened any provision of the FAA, FAR, or any condition of licence
- The licensee has been convicted of an offence involving fraud or dishonesty
- The licensee is being wound up or has otherwise become insolvent
- It is in the public interest to do so
- The licensee obtained the licence by fraud or misrepresentation
- The licensee has failed to satisfy any obligation or requirement imposed by MAS
- MAS is not satisfied as to the fitness and propriety of the licensee or any of its officers
Suspension (Section 17)¶
As an alternative to revocation, MAS may suspend a licence for a period not exceeding 6 months if MAS considers that the circumstances do not warrant revocation. During suspension, the licensee must not carry on any financial advisory activity.
Effects of Revocation or Suspension (Section 18)¶
Upon revocation or suspension: - The licensee must cease carrying on financial advisory services immediately - Existing client obligations must be wound down in an orderly manner - MAS may give directions for the protection of clients' interests - The licensee must surrender the licence to MAS
Right to be Heard (Section 19)¶
Before revoking or suspending a licence, MAS must: 1. Give the licensee written notice of its intention, specifying the grounds 2. Allow the licensee a reasonable opportunity to make representations (at least 14 days) 3. Consider any representations made before making a final decision
Exempt Financial Advisers (Section 23)¶
Categories of Exempt Financial Advisers¶
The following persons are exempt from the requirement to hold a financial adviser's licence, subject to specified conditions:
Banks and Merchant Banks¶
Licensed banks and merchant banks under the Banking Act are exempt from FAA licensing. However, they remain subject to conduct of business requirements under Part III and applicable MAS Notices.
Insurance Companies¶
Licensed direct insurers and insurance brokers registered under the Insurance Act are exempt from FAA licensing when providing financial advisory services involving their insurance products.
Capital Markets Services Licence Holders¶
Holders of a capital markets services licence under the SFA are exempt from FAA licensing to the extent that the financial advisory service is incidental to their regulated activity.
Other Exemptions¶
MAS may exempt any person or class of persons from all or any provisions of the FAA by notice published in the Gazette, subject to conditions.
Conditions for Exempt Financial Advisers¶
While exempt from licensing, EFAs must still comply with: - Part III conduct of business requirements (disclosure, suitability, etc.) - Representative notification requirements - Applicable MAS Notices (e.g., FAA-N16 on recommendations) - Fit and Proper criteria for their representatives
Annual Reporting and Fees (Sections 20-22)¶
Annual Licence Fee (Section 20)¶
Licensed financial advisers must pay the prescribed annual licence fee to MAS. Non-payment may result in licence revocation.
Audited Accounts (Section 21)¶
Licensed financial advisers must: - Prepare annual audited financial statements - Submit the statements to MAS within 5 months of the end of the financial year - Appoint an auditor approved by MAS
Lodgement of Information (Section 22)¶
Licensed financial advisers must lodge with MAS: - Annual returns in the prescribed form - Notification of changes in directors, CEO, substantial shareholders - Notification of changes in business activities or products advised on - Any other information MAS may require
Practical Implications¶
For Financial Institutions Seeking a Licence¶
- Assess licensing need — Determine whether the institution requires a full FAA licence or qualifies for an exemption
- Prepare application materials — Compile corporate documents, business plans, compliance framework, financial statements
- Meet capital requirements — Ensure minimum base capital is in place before application
- Fit and proper assessment — Ensure all directors, CEO, and key persons meet the Guidelines on Fit and Proper Criteria
- Establish compliance infrastructure — Internal policies, training programs, record-keeping systems
- Engage with MAS early — Pre-application consultation with MAS is advisable for complex applications
For Exempt Financial Advisers¶
- Understand applicable obligations — Even without a licence, EFAs must comply with conduct requirements and representative notification rules
- Monitor regulatory changes — MAS may modify exemption conditions through notices and circulars
- Maintain representative standards — EFA representatives must meet the same competency and Fit and Proper criteria as LFA representatives
Representative Appointment Implications¶
All financial advisers (licensed and exempt) must ensure their representatives are: - Properly appointed and notified to MAS before they commence advisory activities - Compliant with CMFAS examination requirements for the products they advise on - Assessed as fit and proper under MAS Guidelines - Subject to the balanced scorecard framework for remuneration (where applicable)
Penalties Summary¶
| Offence | Section | Maximum Penalty |
|---|---|---|
| Acting as unlicensed financial adviser | 6 | Fine $75,000 and/or 3 years imprisonment |
| Breach of licence condition | 13 | Fine $50,000 |
| Failure to submit returns | 22 | Fine $25,000 |
| Making false statements in application | 12 | Fine $50,000 and/or 2 years imprisonment |