Compliance Function Requirements¶

Overview¶

The compliance function is a critical component of a financial institution's governance framework. MAS requires every financial institution to establish and maintain an effective compliance function that is adequately resourced, operationally independent, and has direct access to the board. The compliance function plays a central role in ensuring that the institution's representative management activities comply with the Securities and Futures Act (SFA), Financial Advisers Act (FAA), and all relevant MAS notices and guidelines.

MAS Requirements for Compliance Officer Appointment¶

Regulatory Basis¶

MAS requirements for the compliance function are established through several instruments:

MAS Notice SFA 04-N22 / FAA-N26: Minimum entry and competency requirements for representatives (SFA 04-N22 superseded SFA 04-N09; FAA-N26 superseded FAA-N13 — both effective 1 April 2024). Related risk management practices include the compliance function
MAS Guidelines on Risk Management Practices: Detailed expectations for the compliance function
MAS IAC Guidelines: Accountability of the compliance officer as a designated senior manager
MAS Technology Risk Management Guidelines: Compliance aspects of technology and cybersecurity

Appointment Requirements¶

The compliance officer (or Chief Compliance Officer) must:

Be a senior management appointment, with appropriate authority and stature within the organisation
Have direct and unrestricted access to the board or board audit/risk committee
Possess relevant qualifications, experience, and knowledge of applicable laws and regulations
Be fit and proper under MAS Guideline FSG-G01
Be notified to MAS as a key appointment holder where required

Qualifications and Experience¶

MAS expects the compliance officer to have:

Substantial experience in compliance, legal, or regulatory roles within the financial services industry
In-depth knowledge of the SFA, FAA, and relevant subsidiary legislation
Understanding of MAS supervisory approach, expectations, and enforcement practices
Familiarity with the institution's business activities, products, and distribution channels
Professional qualifications in law, compliance, or a related discipline are strongly preferred

Independence of the Compliance Function¶

Structural Independence¶

The compliance function must be structurally independent from the business activities it oversees:

Reporting line: The compliance officer should report directly to the CEO and have direct access to the board or a board committee (typically the audit or risk committee)
No business responsibilities: Compliance staff should not have responsibilities for revenue-generating activities
Separate budget: The compliance function should have its own budget, not subject to business line approval
Appointment and removal: The appointment and removal of the compliance officer should require board approval

Operational Independence¶

Operational independence means:

The compliance function can conduct its work without interference from business units
Compliance findings and recommendations are not filtered or modified by business management
The compliance officer can escalate issues directly to the board without management approval
Staff in the compliance function are not evaluated or compensated based on the financial performance of the business units they oversee

Conflicts of Interest¶

To maintain independence:

Compliance staff should not have previously worked in the business units they oversee within a reasonable cooling-off period
Compliance staff should not move directly into business roles they previously oversaw without appropriate safeguards
Any potential conflicts of interest should be disclosed and managed

Resources¶

Staffing¶

MAS expects the compliance function to be adequately staffed:

Sufficient number of compliance professionals relative to the size and complexity of the institution's operations
Appropriate mix of skills covering regulatory compliance, AML/CFT, conduct risk, and representative oversight
Ongoing training and professional development for compliance staff
Ability to access external expertise (legal counsel, consultants) when needed

Technology and Tools¶

The compliance function should have access to:

Compliance monitoring and surveillance systems
Regulatory change management tools
Case management systems for tracking compliance issues and remediation
Data analytics capabilities for identifying patterns and trends in representative conduct
Automated screening tools for fit and proper checks and sanctions screening

Budget¶

The compliance function should have a budget that:

Is proportionate to the institution's size, complexity, and risk profile
Is approved by the board or a board committee
Covers staffing, technology, training, external advisors, and regulatory engagement costs
Is not subject to arbitrary reduction by business management

Reporting Lines¶

Internal Reporting¶

The compliance function should have clear internal reporting lines:

To the Board: - Regular (at least quarterly) reports to the board or board audit/risk committee - Immediate escalation of significant compliance breaches or regulatory enforcement actions - Annual compliance report summarising activities, findings, and the overall compliance posture

To Senior Management: - Regular reports to the CEO and relevant senior managers - Timely notification of compliance issues requiring management action - Advisory input on new products, business initiatives, and regulatory changes

From Business Units: - Clear channels for business units to report compliance concerns or seek guidance - Whistleblowing channels that are accessible and protected from retaliation - Incident reporting processes for compliance breaches and near-misses

External Reporting¶

The compliance function coordinates regulatory reporting:

MAS regulatory returns and filings (including representative appointments and cessations)
Suspicious transaction reports to the Suspicious Transaction Reporting Office (STRO)
Breach notifications to MAS as required under relevant notices
Responses to MAS queries, inspections, and thematic reviews

Compliance Monitoring Programme¶

Design¶

The compliance monitoring programme should be risk-based and cover all significant compliance risks:

Representative-specific monitoring areas: - Licensing compliance: verification that all representatives hold valid MAS licences - CPD compliance: monitoring that representatives meet continuing professional development requirements - Conduct standards: monitoring adherence to codes of conduct and fair dealing requirements - Product suitability: reviewing whether representatives provide suitable recommendations - Disclosure requirements: checking that required disclosures are made to clients - Record-keeping: verifying that representatives maintain required records

Monitoring Activities¶

Activity	Frequency	Scope
Representative licence verification	Monthly	All appointed representatives
CPD completion tracking	Quarterly	All representatives with CPD obligations
Sales practice review (file checks)	Monthly/Quarterly	Sample-based, risk-weighted
Client complaint analysis	Monthly	All complaints involving representatives
Transaction surveillance	Ongoing/Daily	Automated surveillance with exception-based review
Mystery shopping	Annual	Sample of representative interactions
Fit and proper reassessment	Annual	All representatives, triggered by events
AML/CFT compliance review	Annual	All representatives with client-facing roles

Testing Methodology¶

The compliance monitoring programme should employ a combination of:

Transaction testing: Review of individual transactions for compliance with policies and regulations
Process testing: Assessment of whether compliance processes and controls are operating effectively
Thematic reviews: Deep-dive reviews of specific compliance topics across the organisation
Root cause analysis: Investigation of compliance failures to identify systemic issues
Trend analysis: Monitoring of compliance metrics over time to identify emerging risks

Findings and Remediation¶

When the compliance function identifies issues:

Documentation: All findings must be clearly documented with supporting evidence
Risk rating: Findings should be rated by severity (critical, high, medium, low)
Remediation plan: Business owners must develop and commit to a remediation plan with clear timelines
Tracking: The compliance function tracks all open findings and monitors remediation progress
Escalation: Overdue or inadequately addressed findings are escalated to senior management and the board
Validation: The compliance function validates that remediation actions are effective

Regulatory Engagement¶

Proactive Engagement¶

The compliance function should manage the institution's relationship with MAS proactively:

Participating in industry consultations and providing feedback on proposed regulations
Attending MAS briefings, seminars, and industry outreach events
Engaging with industry bodies (IMAS, SFA, LIA) on regulatory matters
Monitoring MAS speeches, guidelines, and enforcement actions for emerging expectations

Reactive Engagement¶

When MAS initiates contact or takes action:

Inspections: The compliance function coordinates the institution's response to MAS inspections, including the provision of information, coordination of interviews, and management of findings
Queries: Timely and accurate responses to MAS queries and requests for information
Enforcement: The compliance function manages the institution's response to enforcement actions, including engagement with legal counsel and coordination of remediation
Thematic reviews: Participation in industry-wide thematic reviews and implementation of findings

Regulatory Change Management¶

The compliance function must maintain a process for identifying and implementing regulatory changes:

Horizon scanning: Monitoring MAS publications, consultation papers, and parliamentary proceedings for upcoming changes
Impact assessment: Analysing the impact of proposed changes on the institution's operations and representative management
Implementation planning: Developing plans to implement required changes within regulatory timelines
Communication: Briefing the board, senior management, and affected business units on new requirements
Training: Updating training materials and conducting training for representatives and staff
Verification: Confirming that changes have been effectively implemented

Compliance Culture¶

Role of the Compliance Function in Culture¶

The compliance function plays a key role in fostering a compliance culture:

Providing accessible compliance guidance and advisory services to business units
Conducting regular compliance awareness training for all staff, including representatives
Recognising and rewarding good compliance behaviour
Ensuring that compliance is integrated into business processes, not treated as a separate overhead
Maintaining open channels of communication so that staff feel comfortable raising compliance concerns

Measuring Compliance Effectiveness¶

The compliance function should track metrics that measure its effectiveness:

Number and severity of compliance breaches detected
Time to remediate identified issues
Staff awareness levels (measured through surveys or testing)
Regulatory inspection findings and trends
Client complaint trends related to representative conduct
Timeliness and accuracy of regulatory filings

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