Compliance Toolkit For REIT Management
The REITs industry has risen in significance throughout Southeast Asia, with Singapore as a quick mover in the city, thanks to increased urbanization as well as a flourishing real estate industry. REIT transactions have increased in number and complexity, often incorporating novel and diverse problems inland, trusts, as well as financial regulation, and also cross-border factors.
Criteria for Licensing and Exempt Financial Adviser Status in Singapore
- A Singapore-incorporated REIT manager must have a physical office in Singapore that is permanent.
- A REIT manager must demonstrate to MAS that it can carry out its responsibilities effectively, frankly, and equally—this applies similarly to entities seeking MAS Financial Adviser Exemption under the Financial Advisers Act (FAA) in Singapore.
- According to MAS’s Guidelines on Fit and Proper Criteria [Guideline FSG-G01], a REIT manager must demonstrate to MAS that its significant shareholders, directors, officials, and staff, as well as the REIT manager itself, are fit as well as proper.
- A REIT manager must demonstrate to MAS that its controlling owners, if appropriate, have at least 5 years of experience owning, engaging in, or consulting on the form of real estate that is going to be invested by REIT.
- A REIT manager must demonstrate to MAS that its controlling shareholders have strong rankings in their home countries, if necessary.
- In Singapore, a REIT manager can perform the following tasks in relation to REIT management:
- Compliance
- Accounting and
- Interactions with investors.
- The REIT manager’s Singapore operations should play a significant role in the REIT management, in comparison to any other relevant organizations or subsidiary offices, as the case may be, that may also be responsible for the REIT management. The following non-exhaustive considerations are important to MAS evaluation of the Singapore operations’ position in the REIT management:
- The REIT manager’s board of directors as well as management committees, and also their structure and mandate;
- The degree to which the REIT manager’s Chief Executive Officer (“CEO”) and Singapore-based directors share in the formulation of investment plans and funding operations.
MAS Financial Adviser Exemption: CEO, Directors and Representatives Criteria
According to Section 96 of SFA, a REIT manager must receive MAS permission before:
- Appointing an individual as its Chief Executive Officer or director; and
- Changing the appointment’s nature of a director from the non-executive nature to executive nature.
A REIT manager’s Chief Executive Officer should be based in Singapore. For exempt financial adviser Singapore entities, the CEO and directors must also meet local presence requirements to comply with regulatory compliance for exempt FA firms, especially if advising high net worth individuals or accredited investors without an FA licence.
A REIT manager can inform MAS of a director’s or the CEO’s resignation as soon as possible, but no later than fourteen days from the date of resignation.
Base Capital
A REIT manager must have a base capital of at least $1 million, in line with the Financial Advisers Regulations exemptions under the SF(FMR)R. Similarly, firms seeking FAA Exemption Singapore under Schedule 2 Financial Advisers Act must meet base capital or financial thresholds depending on the exemption type.
Financial Resources
The financial capital conditions set out in SF(FMR)R must be met by a REIT management.
Letter of Undertaking/Letter of Responsibility
MAS can enforce a requirement requiring the REIT manager to obtain a Letter of Responsibility1 or a Letter of Undertaking2 (in a manner acceptable to MAS) from its majority shareholder or parent organization under section 88 of the SFA.
Professional Indemnity Insurance
A REIT manager should obtain a technical indemnity policy that meets the minimum coverage criteria outlined in Annex 1.
Licensed vs. Exempt Financial Adviser in Singapore: Which Path is Right for Your Business?
If a company in Singapore wants to provide financial advisory services, it can choose between being a licensed financial adviser or an exempt financial adviser. It depends mainly on your business plan, whom you serve and your tolerance for regulations.
Any financial adviser licensed by Singapore must meet strict rules and standards set in the FAA and by the Monetary Authority of Singapore (MAS). This occupation is best suited for businesses that help retail clients by providing financial planning or advising them on difficult investments. All licensed advisers are required to observe MAS Notice FAA-N02 by setting up effective systems for compliance.
On the other hand, some businesses might be exempted from the regulation as financial advisers in Singapore if they satisfy the conditions in Schedule 2 for licensed banks, insurance companies, related corporations, family offices and institutions that serve institutional or accredited investors as their clients. EFAs need to meet the requirements for business conduct, yet they do not need a license.
Your decision should be influenced by the services you provide, the type of clients you serve and your growth objectives. If you focus on a particular customer group, the MAS financial adviser exemption can free you from some rules and reduce the costs of complying. If your strategy includes working with consumers or growing your advisory team, it’s better to apply for a full FA license.
Conditions for Exempt Financial Adviser Status in Singapore
In order to qualify as exempt in Singapore, a financial adviser must follow the guidelines given in Section 23(1) of the FAA. According to the business and people it deals with, certain entities may gain exemptions from full licensing to be overseen by the regulatory body.
Most candidates for FAA exemption in Singapore are:
- Banks in business that are licensed and merchant banks
- Insurance companies
- The MAS oversees financial companies.
- Within the group, accessible corporations that provide advisory services
- Family offices are set up to look after the wealth of wealthy families.
- Firms that focus on serving only customers recognized by the SEC
Whilst they are not regulated by the FA regulations, the Financial Advisers Regulations require them to follow set business rules. As an example, they should not trick their clients, reveal any conflicts they have and properly warn them of any risks.
Any company desiring an FA exemption should tell MAS about their status through MAS Form 26 and may also be required to provide some supporting information. If the terms for exemption are no longer met, MAS can take back the exemption.
These financial advisers are permitted to advise businesses, but not unless they first get a separate license to deal with individuals and investors. It gives clients the necessary guarantees and allows firms handling certain groups of customers such as institutional investors or wealthy individuals, to be more flexible.
Firms in Singapore that want to give financial advice with less regulation while following MAS should fully understand how to qualify for exempt status.
