Preempting the Search for Loopholes in Singapore
|Sep 12th, 2012 | Filed under: Regulatory, Today's Post | By: cfaille||
Nearly four years ago, the Monetary Authority of Singapore (MAS) began putting out the word that important revisions to the regulation of fund management companies were under consideration. They would arrive on a Big Day.
That Big Day (or two of them) have come and gone. Specifically, on August 6, 2012 the MAS announced new rules that were to take effect the following day, August 7. The authority framed the new rules as amendments to three existing codes: the Securities and Futures (Licensing and Conduct of Business) Regulations; Securities and Futures (Financial and Margin Requirements) Regulations; and Financial Advisers Regulations.
Risk Management and Base Capital
According to GFIA, which offered its own analysis of the new regs in the August issue of its “Research Insights” publication, their key concept is the requirement of a risk management framework which is itself left undefined, except that an FMC must have one, and it must identify, address, and monitor “the risks associated with assets under its management [in a manner] which is appropriate to the nature, scale, and complexity of the assets.”
The undefined character of the required framework will be frustrating, but GFIA asks that we look at matters from the point of view of the MAS here. Had it codified rules by which a FMC could be sure it has a compliant risk management framework in place, those rules would be, for at least some firms, unexpectedly inappropriate. Further, the exercise would “invite investment banking types to find loopholes.”
With the frustratingly vague language quoted above, the MAS just might spur managers “to think creatively and sensibly about the risks inherent in their businesses, not just in their portfolios.”
Base capital requirements constitute another new feature of the regs. How much base capital an FMC must have varies with the category, and the categories are defined by whose assets are being managed. The highest-tier case capital requirement is S$1 million. The lowest tier is S$250,000.
At current exchange rates those numbers are roughly US$800,000 and $202,000, respectively. These requirements are “not necessarily onerous,” GFIA says, but compliance will require ongoing internal monitoring, and the definition of “base capital” can be a little tricky.
AML and Valuation
GFIA suggests that firms doing business in Singapore, especially those who may not be entirely familiar with the country and its regulatory sensitivities, should be very careful about the cleanliness of the money passing through their hands. “As the Republic increasingly becomes a global center for wealth management, it cannot afford to let its reputation be dented” by anyone trying to use it as a laundry for dirty money. Know your customers.
Also, the new rules have a valuation aspect. GFIA sees this as simply a matter of codifying what is best practice anyway, that if a manager has an asset base that isn’t immediately liquid or market traded, the manager should have a valuation policy in writing.
In general, the GFIA concludes, the new regulations won’t hamstring the local industry. They are “positive, pragmatic, and in line with global best practice.”
Recent Economic Developments
In a separate development, the MAS also recently put out its latest report on recent economic developments in, and prospects for, that country. Since Singapore is a great trading hub, this was mostly a summary of the state of its trading partners, and their likely consequences. They are worthy of a moment of review as a demonstration of the interconnectedness of the world’s profit centers.
This study made the following points:
- The economy contracted in the second quarter of 2012. GDP fell by a seasonally adjusted annualized rate of 0.7 percent
- The MAS is watching continued tensions in Europe, uncertainty in the U.S., and deceleration in both China and India – factors that do not incline it to optimism
- It expects that the economy of Japan will continue growing (though at a decelerating pace) through the remainder of the year, with a low rate of headline inflation
- ASEAN-4 economies (Indonesia, Malaysia, the Philippines, and Thailand) offer a bright spot.
The ASEAN-4 enjoy “relatively strong macroeconomic fundamentals.” In particular, Indonesia’s GDP grew 6.4 percent year-to-year in the second quarter, benefiting form strong foreign direct investment flows. Thailand has seen brisk economic activity, including post-flood reconstruction spending.
Christopher Faille is a Jamesian pragmatist. William James has taught him, for example, that "you can say of a line that it runs east, or you can say that it runs west, and the line per se accepts both descriptions without rebelling at the inconsistency."