Legal Updates for August 2024 Generative AI and Financial Institutions – MAS Provides Insight on Cyber Risks and Mitigation Measures
The Monetary Authority of Singapore has published an information paper on "Cyber Risks Associated with Generative AI" ("GenAI Paper"). The GenAI Paper aims to raise financial institutions’ ("FIs") awareness by highlighting key cyber threats arising from GenAI, the risk implications, and the appropriate mitigation measures that FIs can take.
In this Update, we highlight the key features of the GenAI Paper and what it means for FIs. We also provide an overview of the solutions that Rajah & Tann (including Rajah & Tann Technologies and Rajah & Tann Cybersecurity) can provide, mapped against the elements of the GenAI Paper.
New Screening Report Requirement for S13O, S13U Tax Incentive Applications by Family Offices
In December 2023, the Monetary Authority of Singapore ("MAS") extended the scope of due diligence checks to a wider group of individuals and entities associated with family offices who are applying for tax incentives. Depending on the screening results, applicants may be required to provide further documents to support their application.
On 5 August 2024, MAS published a list of specialist firms that may conduct these screening checks on family offices ("Screening Service Providers") for money laundering and terrorism financing risks. It also stipulated that all new tax incentive applications for fund vehicles managed by family offices must be accompanied by a screening report issued by a Screening Service Provider, beginning from 1 October 2024.
This new requirement is part of a series of moves by MAS to heighten regulatory scrutiny of family offices, with a focus on money laundering risks. In this Update, we look at the new requirement and comment on the broader context of its implementation.
MAS Proposes to Impose on All REITs Minimum Interest Coverage Ratio Threshold and Aggregate Leverage Limit of 50%
The Monetary Authority of Singapore ("MAS") issued a consultation paper seeking comments on its proposals to:
- simplify the leverage requirements for real estate investment trusts ("REITs"); and
- require REITs to perform and disclose sensitivity analyses on the impact of changes in EBITDA and interest rates on their interest coverage ratio (ICR) in their interim financial results and annual reports.
Comments on the proposals must be submitted to MAS by 23 August 2024.
Please read our Client Update for more details about the proposals in the MAS consultation paper.
MAS Proceeding to Refine Tier Structure Requirements and Impose New Remuneration Restrictions for Financial Advisers
On 26 July 2024, the Monetary Authority of Singapore ("MAS") announced that it will implement: (i) refinements to the tier structure requirements together with certain exclusions from the same; and (ii) remuneration prohibitions relating to volume-based incentives, for financial advisory (“FA”) firms.
MAS will provide a transitional period for changes to be made to comply with the proposed tier structure requirements and remuneration prohibitions and will conduct a consultation on legislative amendments to implement these changes. In the interim before the legislative amendments take effect, FA firms are strongly encouraged to implement the tier structure requirements and adjust their remuneration frameworks and practices to be consistent with the finalised requirements.
The Client Update summarises the key proposals shared by MAS and their implications for FA firms.
Public Consultation on Proposed Guidelines to Secure AI Systems
Artificial Intelligence ("AI"), while holding great potential for efficiency and innovation, also carries certain inherent threats such as vulnerability to cyber security risks. The Cyber Security Agency of Singapore ("CSA") has thus developed the Guidelines on Securing AI Systems ("Guidelines") to help system owners secure AI throughout its lifecycle. CSA is also working with AI and cybersecurity practitioners to develop a Companion Guide for Securing AI Systems ("Companion Guide"), which is a community-driven resource to complement the Guidelines, compiling practical measures and controls.
CSA is conducting a public consultation on the Guidelines and the Companion Guide until 15 September 2024. This Update provides a summary of the Guidelines and highlights its key features.
MAS Circular Provides Further Guidance for FIs in Wealth Management Sector on Establishing Sources of Wealth of Customers
On 26 July 2024, the Monetary Authority of Singapore issued the Circular titled "Establishing the Sources of Wealth of Customers" (Circular No.: AMLD 08/2024) ("Circular"). The Circular applies to all financial institutions in the wealth management sector in Singapore ("FIs"). The Circular provides further guidance on the establishment of the sources of wealth ("SOW") of customers and their beneficial owners before business relations with customers can be established.
In summary, the Circular emphasises the existing requirements for FIs to take appropriate and reasonable means to establish the SOW of customers and independently corroborate information obtained from customers against documentary evidence or public information sources.
The Circular provides that FIs should take the following steps:
(a) Ensure that their policies and procedures to establish the SOW of customers are risk-proportionate and reasonable, taking into account the unique circumstances and profile of each customer.
(b) Consider risk principles of materiality, prudence and relevance when designing their policies and procedures to establish the SOW of customers.
(c) Ensure that their senior management should: (i) exercise close oversight over higher risk accounts and transactions; and (ii) ensure that ongoing monitoring controls take into account the customer's risk profile.
This Update outlines the key guidance under the Circular.
A Free Lunch? Singapore High Court Considers Whether Agent is Entitled to Commission Despite Not Being Effective Cause of Transaction
When a principal engages an agent to bring about a transaction, many would reasonably assume that to claim their commission, the agent should have been the effective cause of, or minimally have done some work on, the transaction. After all, there is no such thing as a free lunch – or is there?
In Turms Advisors APAC Pte Ltd v Steppe Gold Ltd [2024] SGHC 174, the Singapore High Court ("Court") found that the contract between the parties did not contain an express term that the agent had to be the effective cause of the transaction ("effective cause term"). This raised the following questions – could an effective cause term then be implied into the contract? If the agent was not entitled to its commission, could it claim a reasonable quantum meruit, i.e. a reasonable sum in respect of services supplied?
In this Update, we look into the Court's reasoning as to why the agent was not required to be the effective cause of the transaction in the circumstances, as well as its answers to these questions.
The defendant was successfully represented by Deputy Managing Partner Kelvin Poon, SC, Partner Devathas Satianathan, and Associate Timothy James Chong of Rajah & Tann's International Arbitration Practice.
MAS Revises Guidelines on Licensing for Payment Service Providers – New Licence Application Requirements
The Guidelines on Licensing for Payment Service Providers (PG-G01) ("Guidelines") issued by the Monetary Authority of Singapore ("MAS") were revised recently to include new requirements for licence applications under the Payment Services Act 2019, including:
- for all licence applications, a legal opinion assessing how the regulated payment services are applicable to each proposed service or product covered by the applicant's business model;
- for licence applications for digital payment token services, an external auditor’s independent assessment of the applicant's policies, procedures and controls in the areas of anti-money laundering/countering the financing of terrorism and consumer protection.
The MAS also expressly set out various rules of engagement which applicants should take note of throughout the application process. This Update provides a summary of the key features of these revisions.
Regional Competition Bites Q2 2024
We are pleased to present our 2nd Regional Competition Bites for 2024. The second quarter has seen extensive enforcement action, increased merger reviews across a larger number of countries and significant regulatory and policy developments across Southeast Asia.
Strong enforcement against anti-competitive practices and cartelistic conduct has been the highlight of this quarter, including decisions by competition authorities in Indonesia, Singapore, Malaysia, and Thailand. On the merger front, M&A activities have picked up which means more merger notifications and investigations against non-notified mergers, including reviews and investigations of mergers in Singapore, Philippines, and Vietnam. On the policy front, Cambodia has published new competition regulations, while Vietnam's consumer protection law is now in full force.
These developments bode well as the growth of competition law and consumer protection capabilities in the region show no sign of slowing, and regulators here are well-placed to collaborate and leverage one another's expertise. The Rajah & Tann Asia Competition & Antitrust Team remains committed to staying abreast of the dynamic landscape of competition law in the region and stands ready to assist.
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