Rising scrutiny of family offices and hedge funds

Changing landscape: Tighter regulations for the wealth-management industry are being put in place after the discovery of a high-profile money laundering case in the city-state. — Bloomberg

SINGAPORE: The Singapore authorities are demanding more information from family offices and hedge funds while stepping up closures of dormant firms after a string of scandals highlighted cracks in the financial hub’s oversight.

The government’s push to tighten various investment regimes has accelerated since March, with agencies setting out additional requirements that must be met in the coming months and ramping up the removal of inactive corporate entities, according to people familiar with the matter.

Family offices that have been granted tax exemptions were given new forms asking for greater details in May and told to submit the information by the end of June.

In March, the Monetary Authority of Singapore (MAS) confirmed it would repeal a licensing regime used by hedge funds with assets of up to S$250mil by Aug 1 and migrate them to one with stricter reporting requirements.

Singapore is stepping up scrutiny of financial institutions after a series of criminal cases highlighted the challenges of policing the influx of foreign wealth into the city state.

At least one of the accused in a recent S$3bil money laundering case was linked to family offices that were granted tax exemptions.

“Having more (and ideally more varied) data helps with potentially detecting undesirable activity earlier, which can help to minimise any loss of economic impact or reputation that illegal activity may cause,” said Singapore Management University assistant professor of accounting Richard Crowley.

According to annual forms that must be submitted to MAS by family offices with tax exemptions, firms must now confirm that their beneficial owners, directors, representatives and shareholders have never committed, been convicted of or even been charged with money laundering or terrorist financing offences.

They must also confirm that the assets under management adhere to domestic capital-control regulations and the fund management company is not facing regulatory actions by any authority in the world.

Family offices must maintain an account with a private bank based in Singapore and provide both the citizenship and country of birth of their ultimate beneficiaries and relevant staff members, according to the forms due from many firms by June 30.

A spokesperson for MAS said in December that its processes would be enhanced to broaden the scope of due diligence checks and that it would take “swift action” to remove incentives from firms if adverse activities were detected.

“The updated annual declaration forms form part of the enhancements,” the spokesperson said, adding that more implementation details and the regulator’s response to industry feedback would be published later in 2024.

MAS has also tightened the tax incentive process, including by broadening due diligence checks to a wider group of individuals and entities and appointing a panel to screen applicants for money laundering and terrorism financing risks. Single family offices linked to people charged “no longer enjoy tax incentives”, it said.

In October 2023, MAS signalled plans to cut the Registered Fund Management Company (RFMC) licence category that has been used by many hedge funds since 2012 and migrate them to a stricter Licensed Fund Management Company (LFMC) regime. In March, the agency gave an August deadline for the move.

“RFMCs have similar admission criteria and business conduct requirements as LFMCs,” the MAS said in October. “However, RFMCs are subject to lighter requirements in terms of the frequency and granularity of regulatory reporting.”

Meanwhile, the Accounting and Corporate Regulatory Authority (Acra) has been reaching out to the directors of some inactive companies in a bid to shut down the firms, according to three people familiar with the moves.

While the agency had previously removed such companies, two industry experts said it was relatively novel, while a third said the scale of the requests was larger than they had ever heard of.

A spokesperson for Acra noted that 17,000 inactive companies had been struck off the register in the five years ended 2023 and that efforts had been ramped up since then. “Acra has been stepping up efforts to strike off inactive companies,” the spokesperson said in a statement, defining these as firms that it has reasonable cause to believe are no longer carrying on business.

“This is part of Acra’s ongoing efforts to reduce the risks of inactive companies being misused for illicit purposes.”

When combined with plans to tighten rules for corporate-service providers, the moves are likely to add to costs for smaller firms doing business in Singapore, according to service providers who asked not to be identified, citing client confidentiality. But they added that it would also help improve the quality of data given to the authorities and close loopholes that had allowed low-quality firms to operate in the city state. — Bloomberg

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