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MAS consultation paper sets out new requirements to curb market abuse
THE Monetary Authority of Singapore (MAS) is seeking to impose new requirements on financial institutions (FIs) in Singapore to improve controls and facilitate investigations in market abuse cases.
MAS cited in a consultation paper released on Monday that the absence of information and delays associated with the retrieval of information on individuals who own or control trading accounts have impeded investigations into market abuses. Moreover, such challenges, MAS added, have been exacerbated by technology, the increasing number of cross border transactions as well as insufficient controls to detect and deter market abuse at brokerages.
The measures proposed include the introduction of a client identification rule, which aims to alleviate challenges in identifying ultimate beneficial owners (UBOs) of orders and trades (O&Ts) executed in omnibus accounts held in the name of foreign intermediaries.
Under the rule, FIs are required to provide information on UBOs to MAS or other law enforcement agencies within five business days upon request.
In the event that an FI's client does not wish to disclose identities of underlying clients to the FI, such information may be provided directly to the requesting law enforcement agency.
At present, records of communication on broker-assisted O&Ts are usually not recorded or retained by FIs, especially if communication is through personal devices such as mobile phones.
Therefore, it has proposed that FIs record all communication - including personal devices - between their trading representatives and the person instructing the O&T for any capital market product in a customer's account. This should be carried out even if communication does not result in a transaction. Such records will need to be kept for five years.
With mobile self-directed trading becoming more prevalent in recent years, MAS has also proposed the introduction of client device identification, where FIs will need to record the device ID for O&Ts via mobile trading applications. Device IDs are a unique alphanumerical identifier generated when a mobile application is installed on a device.
Currently, a number of FIs permit payments in trading accounts to be made in cash and/or by third parties. MAS noted that while legitimate reasons exist for making such transactions, "cases of market abuse having shown that individuals who intended to hide a trail of illicit trading activities have often exploited FI's practices and policies on account funding".
Therefore, MAS has proposed that FIs are required to maintained a centralised, electronic register of all payments received in cash or from third parties by the FIs into their customers accounts. A register of records must be produced to MAS or other law enforcement agencies upon request.
The proposed requirements, which will be set out in a new Notice on Controls against Market Abuse, apply to licensed and exempt FI's in Singapore that undertake the regulated activity of dealing in capital markets products. The proposed notice will take effect six months from the date of issuance.
The consultation period, where MAS invites comments from all financial institutions and members of the public, ends on Sept 5.
Separately, MAS and the Singapore Exchange Regulation released a guide to assist brokers on best practices for trade surveillance operations.
The guiding principles for trade surveillance include: strong senior management oversight, having sound detection mechanisms and assessment frameworks, having sufficient resources for trade surveillance, a proper record-keeping and quality assurance framework, and having prompt and confidential communications on potential market misconduct.
"The proposals in the Notice, together with the Practice Guide, are part of MAS’ broader efforts to enhance surveillance and risk management practices in the industry. They will also strengthen MAS’ ability to monitor and take swift action to investigate market abuse cases in Singapore, such as trading irregularities and price manipulation," an MAS spokesman said.