title: SFA Part IV — Licensing and Conduct of Business: Regulated Activities¶
SFA Part IV — Licensing and Conduct of Business: Regulated Activities¶
Overview¶
Part IV of the Securities and Futures Act 2001 (SFA) establishes the licensing regime for capital markets intermediaries in Singapore. No person may carry on business in any regulated activity unless the person holds a capital markets services (CMS) licence for that activity, is an exempt person, or falls within a prescribed exemption.
The regulated activities are defined in the Second Schedule to the SFA. Each regulated activity has specific licensing conditions, competency requirements, and conduct obligations.
The Nine Regulated Activities¶
1. Dealing in Capital Markets Products (Paragraph 1, Second Schedule)¶
Definition: Carrying on a business of making or offering to make agreements with any person, or inducing or attempting to induce any person to enter into an agreement, for or with a view to acquiring, disposing of, subscribing for, or underwriting capital markets products.
Scope includes: - Buying and selling securities (equities, bonds, units in CIS) on behalf of clients - Proprietary trading in capital markets products - Underwriting and distribution of new issues - Over-the-counter (OTC) dealing in securities and derivatives
Sub-categories: - Dealing in securities - Dealing in futures contracts - Dealing in OTC derivatives contracts
Licensing conditions: - Minimum base capital: S$500,000 for dealing in securities; S$1,000,000 for dealing in futures contracts - Segregation of client assets (SF(LCB)R Part III and applicable MAS Notices on customer assets) - Transaction reporting to MAS (where applicable) - Best execution obligations
Key exemptions: - Licensed banks and merchant banks (exempt for dealing in all capital markets products) - Persons dealing only with accredited investors or institutional investors under certain conditions - Persons dealing only in government securities
2. Trading in Futures Contracts (Paragraph 2, Second Schedule)¶
Definition: Carrying on a business of soliciting or accepting orders for, or otherwise dealing in, futures contracts on behalf of any other person, whether on an exchange or in the OTC market.
Scope includes: - Futures commission merchants - Futures brokers - Introducing brokers for futures products - Trading in commodity and financial futures
Licensing conditions: - Minimum base capital: S$1,000,000 - Margin requirements for client positions (SF(FMR)R) - Daily mark-to-market and margin calls - Segregation of client margin funds - Reporting to approved exchanges
Distinction from dealing: Trading in futures contracts specifically covers the brokerage and execution function for futures, while dealing covers the broader category of making markets or principal trading.
3. Leveraged Foreign Exchange Trading (Paragraph 3, Second Schedule)¶
Definition: Carrying on a business of entering into or offering to enter into, or inducing or attempting to induce a person to enter into, a leveraged foreign exchange trading transaction.
Scope includes: - Margin FX trading (spot and forward) - Rolling spot FX contracts - Contracts for differences (CFDs) based on foreign exchange rates
Licensing conditions: - Minimum base capital: S$1,000,000 - Leverage limits as prescribed by MAS (currently up to 50:1 for major currency pairs, 20:1 for others for retail investors) - Negative balance protection for retail clients - Risk disclosure requirements - Mandatory stop-loss mechanisms
Key regulatory developments: - MAS Notice SFA 04-N16A imposes leverage limits and requires mandatory liquidation when margin falls below prescribed levels. - Retail investors must be provided with risk warning statements before account opening.
Exemptions: - Licensed banks (exempt for leveraged FX trading) - Transactions between accredited/institutional investors only
4. Advising on Corporate Finance (Paragraph 4, Second Schedule)¶
Definition: Carrying on a business of advising others concerning compliance with or in respect of the SFA, any matters relating to securities or futures contracts, or any matters relating to mergers and acquisitions, take-overs, or restructuring of corporations.
Scope includes: - Advising on mergers, acquisitions, and take-overs - Advising on initial public offerings (IPOs) and secondary offerings - Advising issuers on regulatory compliance for capital markets products - Acting as financial adviser for transactions governed by the Singapore Code on Take-overs and Mergers - Advising on debt restructuring and corporate restructuring
Licensing conditions: - Minimum base capital: S$500,000 - Professional indemnity insurance - Fit and proper criteria for directors and representatives - Compliance with the Singapore Code on Take-overs and Mergers (where applicable)
Key conduct requirements: - Managing conflicts of interest (particularly when also acting as dealer or underwriter) - Independence of advice - Disclosure of fees and remuneration arrangements
5. Fund Management (Paragraph 5, Second Schedule)¶
Definition: Carrying on a business of managing a portfolio of capital markets products on behalf of any person, or managing a collective investment scheme (CIS) or business trust.
Scope includes: - Discretionary portfolio management for individual and institutional clients - Management of unit trusts and other CIS - Management of business trusts - Management of variable capital companies (VCCs)
Sub-categories of fund managers: | Category | AUM Threshold | Investor Base | Base Capital | |----------|---------------|---------------|--------------| | Licensed Fund Manager (LFMC) | Any AUM | Any investors | S$250,000 | | Registered Fund Management Company (RFMC) | Up to S$250 million | Max 30 qualified investors | S$250,000 | | Venture Capital Fund Manager (VCFM) | Up to S$250 million | Venture capital funds only | S$250,000 |
Licensing conditions: - Minimum 2 directors who are resident in Singapore - At least 2 relevant professionals with minimum 5 years of experience - Compliance with MAS Guidelines on Licensing, Registration, and Conduct of Business for Fund Management Companies (SFA 04-G05) - Custody of client assets with approved custodians - Annual audit of managed funds - Risk management framework
6. Real Estate Investment Trust (REIT) Management (Paragraph 5A, Second Schedule)¶
Definition: Carrying on a business of managing a REIT or the property of a REIT.
Scope includes: - Management of Singapore-listed REITs - Management of REIT assets (real property portfolios) - Strategic management decisions for REIT properties
Licensing conditions: - Minimum base capital: S$1,000,000 - Must comply with the Code on Collective Investment Schemes (Appendix 6 — Property Funds) - Compliance with SGX Listing Rules for listed REITs - Independent directors on the REIT manager board - Annual property valuations by independent valuers
Key regulatory requirements: - Aggregate leverage limit (currently 50% of deposited property, subject to conditions) - Distribution of at least 90% of taxable income to qualify for tax transparency - Connected party transaction requirements and unitholders' approval thresholds
7. Securities Financing (Paragraph 6, Second Schedule)¶
Definition: Carrying on a business of lending securities or providing advances or credit facility for the purpose of any person's acquisition of securities.
Scope includes: - Securities lending and borrowing - Margin financing (credit for securities purchases) - Stock borrowing and lending intermediation - Repurchase agreements (repos) involving securities
Licensing conditions: - Minimum base capital: S$500,000 - Margin lending limits and loan-to-value ratios - Collateral management requirements - Client disclosure on risks of securities financing - Reporting of short-selling positions (where applicable)
Exemptions: - Licensed banks (exempt, as margin lending is part of banking business) - Finance companies licensed under the Finance Companies Act
8. Providing Custodial Services for Securities (Paragraph 7, Second Schedule)¶
Definition: Carrying on a business of providing custodial services in respect of securities, including safe-keeping, settlement, corporate action processing, and related services.
Scope includes: - Safe custody of securities and documents of title - Settlement of securities transactions - Processing of corporate actions (dividends, rights issues, etc.) - Maintaining records of securities holdings - Sub-custodian arrangements
Licensing conditions: - Minimum base capital: S$500,000 - Segregation of client assets from proprietary assets - Adequate internal controls and risk management for custody operations - Business continuity and disaster recovery plans - Insurance coverage for custody operations - Regular reconciliation of client holdings
9. Providing Credit Rating Services (Paragraph 9, Second Schedule)¶
Statutory basis: SFA 2001, Second Schedule, Paragraph 9
Providing credit rating services means preparing, issuing, or reviewing a credit rating for the purpose of distribution to the public or any section of the public; or doing all things reasonably necessary to prepare, issue, or review such a credit rating.
A credit rating is an opinion regarding the creditworthiness of an entity, a debt or debt-like security, or an issuer of debt or debt-like securities, expressed using a defined rating scale.
Who Needs a CMS Licence¶
Any person carrying on the business of providing credit rating services in Singapore must hold a CMS licence for this regulated activity, unless an exemption applies. Licensed Credit Rating Agencies (CRAs) include entities that publish credit ratings for public consumption (e.g., ratings of debt securities issued by companies or sovereigns).
Key Regulatory Framework¶
- Licensing: CMS licence required under SFA s.82(1) read with Second Schedule Para 9
- Conduct requirements: MAS Notice SFA 04-N22 does not apply to CRA representatives — the competency framework for CRAs is governed separately under SFA Part IIA Division 1A
- International standards: MAS aligns its CRA oversight with IOSCO's Code of Conduct Fundamentals for Credit Rating Agencies
- Conflicts of interest: CRAs must manage conflicts between issuer-pays model and analytical independence
- Disclosure: Rating rationale, methodology, and assumptions must be disclosed to rated entities before publication
Exempt Persons¶
Persons exempt from holding a CMS licence for providing credit rating services include: - Persons who provide credit ratings solely for their own internal purposes and do not distribute such ratings publicly - Persons acting as analysts for a licensed CRA under the supervision of the CRA
Licensing Process¶
Application for CMS Licence¶
Under Section 82 of the SFA, a person may apply to MAS for a CMS licence for one or more regulated activities. The application must include:
- Completed application form — MAS Form 1 (Application for CMS Licence)
- Business plan — Description of proposed business activities, target markets, product range
- Fit and proper assessment — For all directors, substantial shareholders, CEO, and key officers
- Compliance arrangements — Details of compliance framework, AML/CFT policies, risk management
- Financial projections — Demonstrating ability to meet base capital requirements
- Organisational structure — Governance framework, reporting lines, staffing
Assessment Criteria (Section 84)¶
MAS considers the following when assessing licence applications:
- Whether the applicant is a fit and proper person
- Whether the applicant has adequate financial resources
- Whether the applicant has adequate human resources and systems
- Whether it is in the public interest to grant the licence
- Any other matter MAS considers relevant
Licence Conditions (Section 85)¶
MAS may impose conditions on a CMS licence, including: - Restricting the types of capital markets products that may be dealt with - Restricting the types of investors that may be served (e.g., accredited investors only) - Requiring minimum staffing levels - Requiring specific risk management arrangements - Requiring periodic reporting to MAS
Exempt Persons¶
Banks Licensed under the Banking Act (Section 99(1)(a))¶
Licensed banks are exempt from the requirement to hold a CMS licence for all regulated activities except REIT management. However, they must: - Comply with applicable business conduct requirements under the SFA - Register their representatives with MAS under Section 99A - Comply with MAS Notices applicable to exempt persons - Submit regulatory returns as required
Merchant Banks (Section 99(1)(b))¶
Approved merchant banks enjoy similar exemptions as licensed banks. They must comply with MAS Notice 1111 (Risk-based Capital Adequacy Requirements for Merchant Banks).
Other Exempt Persons¶
- Insurance companies — Exempt for fund management limited to insurance funds
- Central Provident Fund Board — Exempt for certain investment activities
- Approved trustees — Exempt for custodial services in connection with CIS they are trustee of
- Persons prescribed by regulations — MAS may prescribe additional categories of exempt persons
Ongoing Obligations for CMS Licence Holders¶
Financial Requirements¶
- Maintain minimum base capital at all times
- Submit financial returns to MAS (Form 1A quarterly, audited accounts annually)
- Maintain adequate professional indemnity insurance (where required)
Business Conduct¶
- Know-your-client (KYC) obligations
- Suitability assessment for investment recommendations
- Best execution for client orders
- Fair dealing outcomes
- Handling of client complaints
Record-Keeping¶
- Maintain records for minimum 5 years
- Transaction records, client communications, compliance records
- Records must be accessible to MAS on request
Notification Obligations¶
- Notify MAS of material changes (directors, substantial shareholders, business activities)
- Notify MAS of significant events (litigation, regulatory actions, financial difficulties)
- Notify MAS of cessation of regulated activities
Cross-References¶
- Second Schedule — Full definitions of each regulated activity
- Part IV, Division 3 — Representative registration requirements
- SF(LCB)R — Detailed licensing and conduct of business rules
- MAS Guidelines on Fit and Proper Criteria (FSG-G01) — Assessment criteria for licence applicants and representatives
- Financial Advisers Act — For persons also providing financial advisory services