Industry watchers positive on new anti-money laundering moves for single family offices

THE government’s move to strengthen anti-money laundering controls among single family offices (SFOs) is a step in the right direction, industry watchers said.

Amid a growing family office scene in Singapore in recent years, industry watchers touted the Monetary Authority of Singapore’s (MAS) move as timely and necessary to ensure further progress in the SFO sector.

On Monday (Jul 31), MAS proposed to harmonise the class exemption criteria for all SFOs operating in Singapore through a revised framework, to combat money-laundering risks.

Currently, SFOs can either rely on existing class exemptions from licensing requirements under the Securities and Futures Act, or apply to MAS directly for case-by-case exemptions.

The changes come shortly after MAS announced several adjustments to its tax incentive scheme for SFOs in Singapore, to encourage them to invest more in the Republic. 

The move was not a surprise for Lee Woon Shiu, group head of wealth planning, family office and insurance solutions at DBS.

Lee noted that many of the families that DBS works with were drawn to Singapore because of its reputation as a transparent and well-regulated financial centre.

“The tightened anti-money laundering controls will ensure that Singapore continues to attract and retain quality SFOs, and bolster the country’s standing as a safe and secure wealth management hub,” he said.

A consultant for several family offices who declined to be named also called the move a “good start” that signals MAS “has teeth”.

Desmond Teo, EY Asia-Pacific family enterprise leader, said the proposed change would also bring about consistency in granting SFOs capital market licensing exemptions, based on “beneficial ownership, rather than being based solely on legal ownership”. 

Paul Chua, global head of wealth planning at Bank of Singapore, welcomed the introduction of a structure-agnostic class exemption, which would streamline the SFO licensing exemption process.

“This shows MAS’ recognition of different family ownership structures that qualify for licensing exemption, as long as they continue to manage the family’s own funds and not third-party assets,” he said.

Chua is also positive on the ability of SFOs to extend their fund management services to key employees, as it allows for the alignment of economic interest and risk-sharing.

But industry watchers polled by The Business Times said they were unsure how many SFOs would be affected by the new proposals, as those which applied for tax or other incentives with the Singapore government would already have to abide by these regulations. 

While DBS’ Lee is still studying the new measures, he expects the changes may not materially affect operations of SFOs which are applying for or have been awarded tax incentives under Section 13O or 13U of the tax incentive scheme – commonly used by SFOs in Singapore.

This is because the sections comes with similar measures which include maintaining a private banking account with a licensed bank in Singapore, and submitting an annual declaration confirming its compliance with the relevant scheme conditions.

Bank of Singapore’s Chua added that families seeking to set up and operate SFOs in Singapore generally do so with the intention of applying for one of the fund management tax incentive schemes.

As at end-2022, the number of family offices in Singapore stood at 1,100. The figure, however, included only those registered with MAS. It is unclear how many other family offices are in the city-state, since it is not currently mandatory for them to register with regulators. 

The revised framework will require all SFOs to be incorporated in Singapore, and to report on their total assets managed at the end of each calendar year.

SFOs are to notify MAS and confirm their compliance with the criteria when they commence operations in Singapore. 

They will also need to maintain a business relationship with an MAS-regulated financial institution, for anti-money laundering checks.

Earlier in July, MAS said it would adjust how it measures and metes out tax incentives. Most of the changes relate to what types of investments count towards their asset under management (AUM) requirements, and how that requirement is met.

Industry watchers had said the tax exemption tweaks may not move the needle for most SFOs, as some of the new requirements are already being practised, while others may be so novel that SFOs are not prepared to embrace them just yet.