MAS Revises FAA and SFA Competency Requirements

The Monetary Authority of Singapore (MAS) has finalised its revision of competency requirements for representatives conducting regulated activities under the Financial Advisers Act 2001 (FAA) and the Securities and Futures Act 2001 (SFA).

MAS has now published its finalised response that addresses questions and feedback given concerning the 2020 Consultation Paper.

Finalised revisions will replace the current FAA Notice and SFA Notice and come into effect on 01 April 2024.

Why Has MAS Made Revisions to FAA and SFA Competency Requirements?

The revision aims to ensure that firms fulfil their obligations and see that appointed representatives undergo structured continuing professional development training (CPD) to remain fit and proper and include minimum entry and examination requirements.

As set out in the Guidelines on Fit and Proper Criteria (Guideline No. FSG-01), competence and capability are criteria that regulators will take into account in considering whether a person is fit and proper.

MAS expects appointed representatives of holders of financial advisers and exempt financial advisers (under the FAA) and appointed representatives of holders of a capital markets services licence and exempt FIs (under the SFA) to “possess the necessary skills and knowledge to perform the activities regulated under the relevant legislation efficiently, honestly, fairly and to act in the best interests of the subscribers or customers of their principal”.

Additionally, MAS states its expectation of appointed representatives to “keep abreast of developments in the industry and update skills and knowledge relevant to the activities they conduct”. Relevant firms must, therefore, ensure that their appointed representatives complete structured training to uphold “fit and proper” regulatory obligations.

New and Updated Items in the FAA Notice and SFA Notice

During the amendment process for the FAA Notice and SFA Notice, MAS invited feedback to the proposed changes through the issuance of its Consultation Paper. The finalised responses to this consultation paper (as of 28 September 2023) can be viewed here.

Some of the critical changes and updates to consider include:

• The introduction of ethics and skills content into the rules and regulations modules of the CMFAS exams in the form of Rules, Ethics and Skills (RES) modules.
  
  
• Tailoring of RES module content for representatives trading on the respective securities and derivatives exchanges.
  
  
• For representatives who have undertaken training hours as part of the Institute of Banking & Finance (IBF) Certification, these hours will be counted towards fulfilling CPD requirements under the revised FAA Notice.
  
  
• Training hours from relevant CPD courses that have been conducted by the Central Provident Fund (CPF) Board can now be counted towards fulfilling the minimum 6 hours of Core CPD training under the revised FAA Notice.
  
  
• Further updates and clarifications of exemptions (see the Notes On Exemptions section in this article for highlights).

FAA and SFA Requirements for Appointed Representatives

Under the new notices, the FAA requirements for appointed representatives now set out:

• The minimum entry requirements.
• Application of the Capital Markets and Financial Advisory Services (CMFAS) examination requirements.
• Circumstances under which the CMFAS examination requirements do not apply.
• Obligations of licensed financial advisers and exempt financial advisers to maintain a register on the representatives’ compliance with the CMFAS examination requirements.
• Continuing professional development requirements.

The SFA requirements for appointed representatives set out:

• The entry, examination and continuing education requirements for representatives, and the obligations of the financial institutions regarding their representatives.
  
  

What Classifies as an Eligible CPD Training Activity?

Under both FAA and SFA Notices, definitions of eligible CPD training activities include:

• lectures; 
• conferences; 
• workshops; 
• courses; 
• product seminars before the launch of new products; 
• e-learning courses,

which have “clear learning objectives and outcomes that are clearly documented and independently verified”. Exclusions of activities include those that are “part of the job scope of an appointed representative, such as carrying out research on products and services for clients”.

The FAA and SFA Amendment Process

In 2020, MAS proposed amendments to the minimum entry and examination requirements for representatives of Licensed Financial Advisers and Exempt Financial Advisers and representatives of Holders of Capital Markets Services Licences and Exempt Financial Institutions.

These amendments to the respective Notice FAA-N13 (FAA Notice) and Notice SFA 04-N09 (SFA Notice) aimed to enhance Capital Markets and Financial Advisory Services (CMFAS) exams and uphold the exemptions for private banking (PB) representatives who only serve accredited investors (AIs).

As part of the amendment process, MAS published a Consultation Paper on the draft notices on the competency requirements for representatives conducting regulated activities under the FAA and SFA. 

Where appropriate, MAS incorporated respondents’ feedback into the revised FAA-N26 and SFA 04-N22 notices. On 28 September 2023, MAS published its finalised response to feedback and will now proceed with implementing the revised Notices, to take effect on 01 April 2024.

Application of the New FAA Notice and SFA Notice

The new Notice FAA-N26 (FAA Notice) addresses eligibility and ongoing requirements for representatives of financial advisers, including entry, CMFAS examination and continuing professional development (CPD) requirements.

The FAA notice applies to:

• All licensed financial advisers, exempt financial advisers and their appointed representatives.

The new Notice SFA 04-N22 (SFA Notice) addresses eligibility and ongoing requirements for representatives of Holders of Capital Markets Services Licence and Exempt Financial Institutions, including entry, CMFAS examination and continuing professional development (CPD) requirements.

The SFA notice applies to:

• Individuals who act or hold themselves out to be representatives who carry out regulated activities.
• Capital markets services (CMS) licensees.
• Banks, merchant banks, finance companies and insurers who have appointed representatives conducting regulated activities under the SFA.

What Happens Next?

Firms have around 6 months to transition to the new competency requirements under the revised FAA Notice and SFA Notice.

It is crucial to be aware of the penalties for non-compliance and any exemptions that may apply (also see our notes on exemptions below).

In the transitional period leading up to the 01 April 2024 cut-over date, The Institute of Banking & Finance (IBF) and Singapore College of Insurance (SGI) will make new study guides available and begin their registrations for the new CMFAS examinations at least 2 months before the cut-over date.

Demonstrating CPD Compliance

For firms under the applicable FAA Notice

The financial adviser must maintain a register containing the following information or records for each of its appointed representatives:

• The type of financial advisory services provided by the representative;
• Details of the representative’s academic qualifications and how they met the minimum academic requirement set out in Part 3 of the FAA Notice;
• Details of the representative’s fulfilment of the relevant minimum examination requirements set out in Part 4 of the FAA Notice, or its exemptions; and 
• Supporting evidence that the representative has completed the minimum hours of CPD training under Part 5 of the FAA Notice, within the stipulated period.

Firms must maintain records of each appointed representative in the register for at least five years from the end of the calendar year in which the financial adviser appoints the representative.

For firms under the applicable SFA Notice

A holder of a CMS licence or an exempt FI must maintain a register stating whether its representatives are subject to the CMFAS Exam Requirements relevant to the regulated activities of the representatives.

These relevant firms must also: 

• Include in the register the type of regulated activities conducted by the representative, the date on which they completed the examination, and for any representative who is not required to pass certain modules of the CMFAS Exam under the SFA Notice, include the details of exemption, if any.
• Retain the register for a period of at least five years from the end of the calendar year in which the representative is appointed by the principal.
• Certify and ensure that representatives comply with the CMFAS Exam Requirements set out in the SFA Notice.

Additionally, relevant firms must not allow representatives who are subject to the CMFAS Exam Requirements to commence carrying out any regulated activity unless they have passed the applicable modules of the CMFAS Exam.

A principal must include the CPD training undertaken by its appointed representatives under section 8 of the SFA Notice in its assessment of whether its appointed representatives remain “fit and proper” in the conduct of the relevant regulated activities.

Penalties for Non-Compliance

Firms and their authorised representatives need to properly record, maintain and update registers of CPD activity to satisfy regulators of ongoing competency requirements being upheld. Financial penalties for non-compliance include: 

• Under section 67(5) of the FAA, any person who fails to comply with any requirement specified in a written direction issued by the Authority shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $25,000 and, in the case of a continuing offence, to a further fine not exceeding $2,500 for every day or part of a day during which the offence continues after conviction.
  
  
• Under section 101(3) of the SFA, any person who contravenes any requirement specified in a direction issued by the Authority shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $50,000 and, in the case of a continuing offence, to a further fine of $5,000 for every day or part of a day during which the offence continues after conviction.

Notes on Exemptions

MAS has addressed responses from the consultation process, clarifying the minimum academic requirements and CPD requirements under the FAA Notice and SFA Notice and the extension and scope of certain exemptions.

Private Banking Representatives

MAS will exempt private banking representatives from specialised units from meeting the minimum academic requirements under the revised FAA Notice, where they had an existing exemption from section 100(2) of the FAA - to effectively “grandfather” these exemptions. MAS also stated these exemptions will still apply to those representatives if they shift employment from one private bank to another.

Putting SFA Notice Exemptions In Line with FAA Notice Exemptions for AIs, IIs, and Expert Investors

MAS will also extend the scope of exemptions from CPD requirements under the SFA Notice to equivalent exemptions under the FAA Notice. For example, the SFA Notice exempts representatives who only serve accredited investors (AIs) and/or institutional investors (IIs) from the CPD requirements. However, the FAA Notice includes AIs, IIs, and Expert Investors. MAS has accordingly updated the revised SFA Notice so that representatives who only serve AIs, IIs, and/or Expert Investors will be exempted from the CPD requirements.

Exemptions Where LFMCs Manage Funds Only for AIs and/or IIs

MAS has clarified that regarding CMFAS examination exemptions for dealing representatives of a licensed fund management company (LFMC) where the LFMC only manages funds for AIs and IIs, these exemptions do not apply to representatives of other types of financial institutions, such as banks.

Exemptions for Financial Advisory Services Representatives Providing Only Customised Information

Where a representative who limits the scope of their financial advisory services by providing only customised information, for example, where it is tailored to a specific client’s financial requirements and on funds that the representative’s own LFMC manages, MAS has agreed to extend this exemption under the FAA Notice to funds managed by the LFMC’s related corporations.

As the above exemptions are not an exhaustive list of exemption considerations and updates included in the FAA Notice and SFA Notice, it is advisable to thoroughly review Annex A, B, C, D, and E (starting from page 26) of the FAA Notice and Part 5 (starting from page 9) of the SFA Notice.

How Technology Helps Firms Remain Compliant with CPD Requirements

The revised FAA Notice and SFA Notice will come into effect on 01 April 2024.

There are various changes to CPD requirements that firms should ensure they are upholding to demonstrate their compliance with MAS’ regulations.

As firms undergo the 6-month transition towards the new FAA Notice and SFA Notice requirements, a perfect opportunity exists to ensure representatives are upholding CPD obligations.

Regulatory Technology (RegTech) solutions, such as MyComplianceOffice (MCO), equip firms with visibility and oversight of employees’ CPD and examination requirements.

MyComplianceOffice (MCO) is a comprehensive regulatory compliance management platform for tracking employee training and certifications, monitoring regulatory changes, and quickly generating compliance reports.

MCO brings a specific Authorisations, Registrations, and Licensing (ARL) module with in-depth functionality that provides compliance managers with data collection tools, workflows, communications, alerts, approvals, and reporting. As a result, compliance teams can easily track representatives’ progress with CPD programs and many other licensing and registration requirements to know that company policy and regulatory compliance requirements are being upheld.

Learn more about CPD compliance within your firm. See our in-depth article Addressing Compliance Within Financial Firms’ CPD Requirements.