A presentation made at a joint event between AG Delta, RHTLaw Taylor Wessing and RHT Compliance Solutions discussing ratcheting regulations in Singapore, in the areas of suitability, classification of accredited investors and anti-moneylaundering.

1. 11
AG Delta Breakfast Event
Ratcheting Regulations –
How Should Private Banks Respond?
Nizam Ismail
Partner and Head of Regulatory Practice, RHTLaw Taylor Wessing
Co-Founder, RHT Compliance Solutions
20 Apr 2016

2. 22
Good people do not
need laws to tell them
to act responsibly, while
bad people will find a
way around the laws -
Plato

3. 33
BIG PICTURE
“I would describe our approach – or at least our goal – as
smart regulation: regulation that is sound yet purposeful.
MAS seeks to do this in three ways.
• First, regulation is aligned with the best international
standards but is also appropriate to the risks in domestic
markets.
• Second, regulation is complemented with intensive
supervision that calibrates responses according to the
risk profile and impact of individual institutions.
• Third, regulation is focused on outcomes rather than
prescribed checklists and is implemented in a way that
seeks to minimise compliance burden.”
Ravi Menon – 12 May 2015 “Smart Regulation and Sustainable
Insurance Growth”

4. 44
AGENDA
1. Suitability and Fair Dealing
2. New Accredited Investor
Regime
3. New AML/CFT Rules

5. 55
PART 1: FAIR DEALING

6. 66
2001
• Financial
Advisers
Act
enacted
2008
• Lehman
Brothers
collapse
• Global
financial
crisis
2009 2010
• Revised MAS
Information
Paper on
Good
Practices for
Financial
Advisers
• Revised MAS
Guidelines on
Standards of
Conduct for
Financial
Advisers and
Reps
2011
• Amendments to
FA Regulations
• MAS Notice on
Recommendations
on Investment
Products
• MAS Practice Note
on
Recommendations
on Investment
Products
2013
• Revised MAS
Guidelines on
FAIR Dealing
• Revised MAS
Notice on
Information to
Clients and
Product
Information
Disclosure
• MAS’ Response
to FAIR
Consultation
• Proposed
Amendments
to FA
Regulations
2014
• Private
Banking
Controls
2015
• FAIR
Recommend
ations
• Proposed AI
Test
FAIR DEALING: EVOLUTION

7. 77
> More prescriptive suitability
expectations
> Emphasis on role of Board and
Senior Management
> Simpler and more effective
product disclosure (PHS)
> Customer knowledge assessments
for unlisted products
> Examination requirements
(Module 6A) for anyone touching
a specified investment product
> FAIR recommendations – most
extensive rule changes to financial
advisory industry
REGULATORY TSUNAMI POST-LEHMAN

8. 88
PB CONTROLS
> Customer Profiling
- Comprehensive risk assessment
- No overriding of risk profile by RM
without good reasons
- Risk profile review to be done
independent of AML review
> Product Classification
- Annual review of product risk rating
- Structured process for product risk rating
- Sufficient resources and committed to
review
> Advisory & Sales Process
- Process for vulnerable classes (eg young
& elderly)
- Pre-trade checks for products falling
outside customer’s investment
experience and/or knowledge
- Risk mismatch checks at porfolio level for
holistic review. Complements product
mismatch checks
- Post-trade checks (churning and risk
concentrations) and validate suitability
(esp for significant profits/losses within
short period)

9. 99
SUITABILITY IN HK
“If we [the intermediary] solicit the sale of or
recommend any financial product to you [the
client], the financial product must be reasonably
suitable for you having regard to your financial
situation, investment experience and investment
objectives....No other provision of this agreement
or any other document we may ask you to sign
and no statement we may ask you to make
derogates from this clause.”

10. 1010
PART 2: ACCREDITED INVESTOR REDEFINITION

11. 1111
REFINING THE AI REGIME
Rationale
 Current - Investors meeting wealth or income
thresholds are AIs by default.
 Lower level of regulatory protection
 New - AI-eligible investors to opt for level of
regulatory safeguard
 Rationale – Fiction that investors meeting wealth
or income tests can take care of themselves.
New Regime
 New customers: AI-eligible investors will be
treated as retail investors by default, unless they
“opt-in” to AI status.
 Existing customers: - continue AIs, unless they
“opt-out”

12. 1212
 FIs to give clients written notice :
 Request for AI status;
 Warning of loss of certain regulatory
safeguards once they opt-in; and
 AI-client will confirm his wish to opt-in
and acknowledge acceptance of
consequences.
Existing AI clients: FIs must notify in writing:
 They will continue to be treated as AIs
but can ‘opt-out’
 if they do not opt-out, FI is exempt from
complying with certain regulations
 if they opt out, FI may not be able to
continue dealing with them
Per FI Status
 Investors can opt-in at one FI, and not opt-in
at another (but not product by product – no
“cherry-picking”)
REFINING THE AI REGIME

13. 1313
How to Comply?
 New Customers
 Account opening/subscription documents: opt-in
notification and confirmation
 Separate from account opening forms, so that client can
retain
 Existing Customers
 Opt-out confirmation form
 FI must receive confirmation of AI status and acceptance of
implication of that status by next “account review” (still an
“active/conscious” opt-in eventually).
Form of the Notification/Confirmation
 No prescribed form
 Confirmation can be via email or verbal (appropriately
recorded and documented)
 Opt-in notification can be on same form as written
confirmation (eg check box and signature box), as long as
copy of notification given to investor
 Description of regulatory safeguards in plain English
REFINING THE AI REGIME

14. 1414
PART 3: NEW MAS AML/CFT
REQUIREMENTS

15. 1515
> Enterprise risk-based assessment
> New products, practices and technologies – formalized
assessment
> Reasonable grounds for suspicion - to cease business, file
STR
> Increased requirements for CDD on non-natural persons
> Explicit requirements for CDD on authorised natural persons
> CDD screenings made mandatory
> Increased focus on Beneficial Owners
> Widened definition of PEPs
> Legal entities controlled by PEPs caught
> Mandatory ongoing monitoring
> Sufficient compliance resources
NEW AML RULES - IN A NUTSHELL

16. 1616
IMPACT ON MANAGEMENT
Oversee Enterprise Risk Assessment
AML Assessment - New Product, Business,
Technologies
Screenings Robust Monitoring
Compliance
Resourcing

17. 1717
If you think Compliance is expensive,
try non-Compliance

18. 1818
> Questions

19. 1919
T: E:
Contact Details
Nizam spearheads and is a Director of RHT Compliance Solutions, a dedicated
financial services compliance consultancy/solutions provider.
He has had 20 years of experience and expertise in financial services regulatory
compliance and litigation.
He was Executive Director and Head of Compliance for Southeast Asia in Morgan
Stanley Singapore. Nizam was also formerly Senior Vice President and Head of
Compliance for Southeast Asia at Lehman Brothers Singapore, Executive Director
(Legal and Compliance) in Nomura Singapore and Senior Legal Counsel of
Citigroup (Corporate and Investment Bank). Nizam’s area of compliance coverage
included markets, investment banking, corporate banking, private banking and
asset management. Nizam’s product coverage included fixed income, equities,
commodities, currency, rates, derivatives, futures, structured deposits.
Nizam spent six years as a regulator at the Monetary Authority of Singapore
(MAS), where he was Deputy Director and Head of the Market Conduct Policy
Division. There, Nizam worked on various policy reviews relating to the capital
markets, including various policy reviews leading to the enactment of the
Securities and Futures Act, the Financial Advisers Act, Trust Companies Act and
the Business Trust Act. Nizam also conducted a review on the application of
competition law on financial services. Nizam also worked with other international
financial services regulators on a variety of cross-border regulatory projects.
The policy reviews that Nizam oversaw at MAS included: (1) revamp of regulatory
framework on markets/recognized market operators, (2) dual currency
investments, (3) credit card solitication rules, (4) disclosure requirements for
investment products, (5) rationalisation of wholesale/retail investors, (6) extra-
territorial application, (7) regulation of traded life/endowment policies, (8) civil
penalty regime for market misconduct, (9) review of insider trading, (10) licensing
and business conduct issues, (11) policies behind regulation capital markets
intermediaries, (12) implementation of recommendations of Corporate Law and
Regulatory Framework Committee (CLRFC).
At the MAS, Nizam also worked on policy issues relating to corporate governance
issues. Issues include: (1) review of corporate governance code, (2) quarterly
reporting , (3) disclosure of operating and financial reports by listed companies
and (4) drafting of the Code of Corporate Governance for listed companies.
Having graduated from the NUS Law School in 1991 on a Public Service
Commission Local Merit Scholarship, Nizam started his legal career as Deputy
Public Prosecutor/State Counsel at the Commercial Affairs Department, where he
prosecuted high-profile corporate and market misconduct cases including insider
trading, market rigging and fraud.
Nizam Ismail
Co-Founder RHT Compliance Solutions,
Partner, RHT Law Taylor Wessing
+65 6381 6843 nizam.ismail@rhtlawtaylorwessing.com