In late 2022, the Monetary Authority of Singapore (MAS) announced a complete ban on payment for order flow (PFOF) in Singapore. The move is designed to protect investor interests by mitigating the risk of conflicts of interest arising in brokers’ best execution obligations to their customers. The PFOF ban will commence on 1 April 2023 and can affect financial firms and individuals operating under a capital markets services (CMS) licence in Singapore.
Capital markets (CMS) brokers have previously been able to gain commission and other forms of payment from other brokers, counterparties, and market makers for the placement and execution of customer orders. Although payment for order flow may only amount to fractions of cents per share, they can become substantial totals when aggregated.
As the Guidelines to MAS Notice SFA 04-N16 on Execution of Customers’ Orders details, “PFOF introduces conflicts of interests and is likely to cause harm to customers as the CMS Broker may be incentivized to pursue commission or other form of payment from another broker or counterparty in return for routing customers’ orders to that broker or counterparty for its own benefit. This is inconsistent with the CMS Broker’s duty to provide Best Execution to customers.”
Under the updated regulatory requirements from MAS, the PFOF ban will be effective from 1 April 2023. It will impact brokers and financial firms dealing in securities, derivatives, collective investment schemes and leveraged FX products.
The ban continues the trend from other global regulators. The UK, EU, and Canada have already banned PFOF, with Australia enacting temporary prohibitions while authorities consider a total ban. So while CMS brokers and financial firms in Singapore, the UK, EU, Canada, and Australia may be affected right now, the observed shift towards the prohibition of payment for order flow may include more jurisdictions in the future.
Simply having systems in place to monitor potential issues is not enough to fulfil regulatory compliance obligations. Your firm’s technology must be capable of proactively flagging potential conflicts and suspicious activity to compliance teams. It must also quickly and effectively produce reporting and documentation that confirms or disproves any assumptions of wrongdoing, particularly upon request by regulators.
MCO’s integrated compliance management suite enables firms to identify conflicts of interest more efficiently across their entire organisation. MCO provides a consolidated platform for compliance teams to manage areas of potential conflict, including:
For more information about how MCO’s innovative compliance management platform can help your firm effectively manage conflicts of interest, schedule your no-obligation meeting with MCO APAC Director, Kelly-Ann McHugh, or request your demo now.
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