Singapore's new family office rules to raise costs, reporting requirements
The Monetary Authority of Singapore’s (MAS) proposed anti-money laundering (AML) rules for single-family offices (SFOs), part of an effort to institutionalise the sector, have mostly been welcomed — although specific elements of the planned regulatory framework have prompted questions and concerns.
For instance, Michael Marquardt, the Singapore-based Asia chief executive at IQ-EQ, an investor services firm that sets up family offices, told AsianInvestor that the new rules, which are out for public consultation until September 30, are likely to prompt smaller and less structured SFOs to consider leaving the city-state.
“If some family offices here are engaging in practices that are less structured and are going to struggle meeting the new regulatory system, they're going to be looking for other jurisdictions,” he said. “I don’t think it’ll be a huge number, but we're going to see some family offices consider moving out of Singapore.”
However, he added that this would be a net positive, saying: “If I'm a family office, I'm going to want to be in a ‘clean’ neighbourhood, and this is good because it helps to not only protect Singapore and Singapore's financial services reputation, but as a [compliant] family office, it protects me, as well.”
REGULATORY AMBIGUITY
Yet when it comes to the particulars of the proposed rules, some dissatisfaction is evident, particularly relating to their relative ambiguity.
Joyce Woo, chief executive and head of Singapore at multi-family office Leo Wealth, questioned a provision in the proposed regulatory framework that requires SFOs to maintain a relationship with an MAS-regulated financial institution that will perform AML checks on them, but which does so in a somewhat open-ended way.
“One of the pushbacks, if I was running an SFO, would be that if I have a bank account with a properly licensed and regulated bank in Singapore, that box should be considered checked,” she told AsianInvestor. “The question in my mind is, I don't know whether the MAS wants to take that one step further to say, ‘Ok, that’s a prerequisite. But what I want you to do now is to engage either a registered fund management company or a capital markets-licensed entity or a custodian.”
“My concern really is that it means additional costs for SFOs,” she continued. “Maintaining a regular bank account is one thing, but if MAS asks me to appoint a designated custodian or a securities firm or a fund manager, it's going to add to costs, so that will be one of my feedback items for the consultation on the proposed changes.”
Tuck Meng Yee of Singapore based single-family office JRT Partners told AsianInvestor that the planned rules on relationships with regulated entities would likely evolve, shaped by developments in the SFO sector.
A single-family office executive who did not wish to be identified said the rules remained ambiguous in their meaning. The executive also questioned the reporting requirements under the proposed new rules, saying: “What level of reporting will be required is a big question.”
RAPID REPORTING
Woo was more specific in her comments on the planned reporting arrangements.
“One of the requirements that's being proposed is that SFO annual accounts have to be submitted to the MAS within 14 days of year end,” she said.
“That's going to be very, very challenging, even if they’re unaudited. To tell any entity that they need to submit unaudited annual financial reports within 14 days of closing is next to impossible because in Singapore, there's a real shortage of manpower in the accounting and auditing fields.”
Yee said that given the short period within which SFOs had to report their financial position, the MAS still had work to do on the valuation front.
JRT Partners
MONETARY MOTIVATIONS
Yee and Philippa Allen, managing director of regulatory compliance for Asia at consulting firm ComplianceAsia, now part of IQ-EQ, shared the view that such a narrow definition of key employees was at odds with SFOs’ imperative to incentivise staff members, and Yee suggested that the definition be broadened.
ComplianceAsia
“In reality, you could define everyone as a key employee, and that's fine. How do you make sure that you keep your staff? It's important that your staff have some upside to what they're doing, if they're doing all that work investing for you,” Yee said.
Woo and the single-family office executive who preferred not to be named said that costs overall were a concern raised by the planned new regulations.
Allen meanwhile suggested that higher costs would drive consolidation in the SFO sector. “I think we'll see consolidation – and not only among small SFOs,” she told AsianInvestor. “It makes sense as well, because they're not getting the best investment opportunities or execution rates because their assets under management are too small, even if they're just trading liquid markets.”
QUALITY AND CONSOLIDATION
Kia Meng Loh, co-head of the private wealth and family office practices at law firm Dentons Rodyk, told AsianInvestor that he was handling fewer enquiries from individuals seeking to set up family offices as the MAS imposed stricter requirements for the sector, and that its planned new regulatory framework was one component of a broader, ongoing effort to burnish Singapore’s credentials as a finance hub.
Dentons Rodyk
“As the quality of SFOs becomes better and once there’s a critical mass, with 1,100 family offices now plus those that are not on the radar — maybe another 300 to 400 — the MAS can say, ‘I want you to band together and share your resources’,” he said. “I see an increasing trend of SFOs coming together to form multi-family offices with core groups of people servicing them for things like compliance, human resources, finance, and auditing.”
Sam Robinson, a managing partner at Singapore-headquartered SFO North-East, said that increased regulation would encourage consolidation in the SFO sector, but that countervailing pressure also existed.
“...it’s not really banding together, because being a family office, it’s not just about financial factors — it’s about the needs of the family, and one of those needs or wishes may well be self-determination.”