Understanding the Capital Markets Services License
As set out in the Securities and Futures Act (SFA), a CMS licence is required for entities that carry out certain financial transactions. This authorization is issued by the Monetary Authority of Singapore (MAS), and there is a list of activities that should be considered:
- Fund management
- Management of real estate investment trusts (REITs)
- Corporate finance advisory
- Trading in capital markets products (securities, collective investment scheme units, OTC derivatives, exchange-traded derivatives, spot foreign exchange)
- Securities financing
- Credit rating services
- Custodial services for securities
The Capital Markets Services license is primarily required by entities that plan to engage in the above-mentioned financial activities. Corporate finance advisors, REIT managers, credit rating agencies, and broker-dealers are among the firms subject to this requirement. In the case of organizations such as law firms and licensed trust companies, there may be an exemption from the need to obtain such a license.
Requirements for Acquiring a CMS Licence
The Monetary Authority of Singapore (MAS) assesses various criteria before issuing a capital markets services licence Singapore, which is vital for applicants to consider:
- Evaluation of the fitness and propriety of the applying entity, its shareholders, and directors.
- The applicant’s and its parent company or key shareholders’ track record and managerial expertise.
Financial Stability
- Adherence to minimum financial thresholds as specified in the SFA, such as a S$250,000 base capital for credit rating agencies and S$1 million for REIT managers.
- The robustness of internal risk management and compliance frameworks.
- The viability of the business model, plans, projections, and their associated risks.
Additionally, entities seeking a CMS license must appoint key personnel:
- Minimum of two directors, with at least one being a Singapore resident.
- A CEO who has a minimum of ten years of relevant experience and resides in Singapore.
- At least two full-time, Singapore-based individuals for conducting each regulated activity, acting as the business’s representatives.
Criteria for Representatives
- Must be at least 21 years old.
- Must meet the academic and examination prerequisites outlined by MAS, e.g., a Bachelor’s degree in a pertinent field for those providing credit rating services.
- Must fulfill the competence, honesty, and financial probity requirements as detailed in MAS guidelines.
Capital Markets Services Licence Financial Requirements
Meeting specific financial criteria is mandatory for entities operating under a capital markets services (CMS) licence to ensure a stable and trustworthy financial market environment.
Broker-Dealer
Base Capital: S$50,000 to S$5 million, based on:
- Product types offered.
- Membership status with clearing houses or exchanges.
- Management of customer positions, funds, or assets.
- Direct transactions with clients as principal.
Other Requirements
- Must have financial resources exceeding total risk assessments.
- Obliged to collect margins for certain transactions, including product financing and contracts for differences or leveraged foreign exchange trading.
SCF Operator
Base Capital: S$50,000 to S$1 million, contingent on:
- Offered product variety.
- Type of clientele.
- Handling of customer funds or assets.
- Principal transactions with customers.
Other Requirements
Financial resources must surpass total risk assessments.
Corporate Finance Adviser
Base Capital: S$250,000, escalating to S$1 million if:
Engaged in more than one regulated activity.
Other Requirements
Required to hold financial resources above total risk necessities.
Credit Rating Agency
Base Capital: Fixed at S$250,000.
Other Requirements
None specified.
REIT Manager
Base Capital: Established at S$1 million.
Other Requirements
Must possess financial resources greater than total risk evaluations.
Guide to Securing a CMS License in Singapore
Stage 1. Preparing Your Business
- Confirm your business is legally incorporated.
- Open a corporate bank account, secure office space (if necessary), draft employee contracts and outline your business plan.
- Establish policies for Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) to align with Singapore’s regulations.
- These steps are foundational for MAS’s evaluation of your application for Capital Markets Services licence application.
Stage 2. Submitting the Application to MAS
Documentation
- Use Form 1A for licensed fund management, Form 1V for venture capital managers, or Form 1 for other financial services.
- Form 3A appoints representatives for regulated activities. Temporarily or provisionally, representatives must submit Form 3B or Form 3C.
Fees
- Application fee: S$1,000 (non-refundable).
- Representative lodgement: S$200 each.
Stage 3. Waiting for the Outcome
MAS reviews applications within 4 months, provided all documents are correct, and fees are paid. Complex business models may require additional review time to approve a MAS Capital Markets Services licence.
Compliance for Capital Markets Services License Holders
Securing a CMS licence MAS mandates ongoing compliance to maintain operational legitimacy in Singapore. Non-adherence may result in licence revocation, ceasing regulated activities.
MAS Regulation Compliance
- Implementing and adhering to Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) policies.
- Conducting thorough risk assessments enterprise-wide.
Licence Condition Adherence
- Initiating business activities within six months of license issuance and notifying MAS of delays.
- Maintaining minimum competency requirements, including having at least two directors and necessary representatives.
Following MAS Directives
Complying with specific instructions from MAS.
An illustrative case of non-compliance is Apical Asset Management’s CMS licence revocation in July 2020. The firm breached AML/CFT regulations by failing to:
- Establish basic AML/CFT policies and controls.
- Conduct risk assessments to understand vulnerability to risks.
- Monitor accounts associated with politically exposed persons adequately.
- Engage in independent audits to assess control effectiveness.
FAQ
What activities necessitate a Capital Markets Services License in Singapore?
The activities include fund management, real estate investment trust management, advising on corporate finance, dealing in capital markets products (like securities, units in a collective investment scheme, over-the-counter and exchange-traded derivatives, and spot foreign exchange), securities financing, providing credit rating services, and custodial services for securities.
What are the consequences of operating without a Capital Markets Services Licence?
Operating without a valid licence can lead to a fine of up to $150,000 and/or imprisonment for up to 3 years. For continuing offenses, a further fine of up to $15,000 for each day the offense continues may also be imposed.
What criteria does MAS consider for a Capital Markets Services License application?
MAS evaluates the fitness and propriety of the applicant, its shareholders, and directors; the track record and management expertise; the ability to meet minimum financial requirements; the strength of internal risk management and compliance systems; and the business model, plans, and associated risks.
What are the annual fees for a Capital Markets Services Licence?
Licence holders must pay an annual licence fee ranging from S$2,000 to S$8,000, depending on the regulated activity. Additionally, there is an annual fee of S$5 per representative starting from the 101st representative.
