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SINGAPORE: Singapore authorities are intensifying scrutiny of family offices and hedge funds and closing dormant firms in response to a series of scandals that have revealed weaknesses in the financial system.

According to The Edge Malaysia, since March, the government has accelerated efforts to tighten investment regulations.

Agencies have rolled out new requirements for firms to meet in the coming months and are stepping up efforts to remove inactive corporate entities, according to sources familiar with the matter.

Family offices with tax exemptions received new forms in May requesting more detailed information. The submission deadline was the end of June.

In March, the Monetary Authority of Singapore (MAS) announced it would abolish a licensing regime used by hedge funds with assets up to US$250 million (approx. S$338 million) by Aug 1.

These funds will transition to stricter reporting requirements.

These measures come as Singapore faces challenges in monitoring the influx of foreign wealth, which has been highlighted by recent criminal cases.

At least one individual involved in a recent S$3 billion money laundering case was linked to tax-exempt family offices. According to Richard Crowley, assistant professor of accounting at Singapore Management University:

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Having more (and ideally more varied) data helps with potentially detecting undesirable activity earlier, which can help to minimise any loss of economic impact or reputation that illegal activity may cause.” 

The MAS now requires family offices with tax exemptions to submit annual forms confirming that their beneficial owners, directors, representatives, and shareholders have no history of money laundering or terrorist financing offences.

These firms must also verify that their assets comply with domestic capital control regulations and that they are not facing regulatory actions from any authority worldwide.

Additionally, family offices must maintain accounts with private banks in Singapore and provide citizenship and country of birth details for their ultimate beneficiaries and relevant staff members, according to the forms, which are due by June 30 for many firms.

A MAS spokesperson stated in December that the agency would enhance its processes to expand due diligence checks and swiftly remove incentives from firms engaged in adverse activities.

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“The updated annual declaration forms form part of the enhancements,” the spokesperson said, adding that further implementation details and the regulator’s response to industry feedback would be published later this year.

MAS has also broadened its tax incentive process by expanding due diligence checks to include a wider range of individuals and entities and has appointed a panel to screen applicants for money laundering and terrorism financing risks.

It noted that family offices linked to individuals facing charges no longer enjoy tax incentives.

In a related move, MAS announced last October plans to eliminate the Registered Fund Management Company (RFMC) licence category, which many hedge funds have used since 2012.

These funds will transition to the stricter Licensed Fund Management Companies (LFMC) regime by August.

“RFMCs have similar admission criteria and business conduct requirements as LFMCs,” MAS said. “However, RFMCs are subject to lighter requirements in terms of the frequency and granularity of regulatory reporting.”

Simultaneously, Singapore’s Accounting and Corporate Regulatory Authority (ACRA) has been contacting directors of some inactive companies to shut them down, according to sources.

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Although ACRA has previously removed such firms, industry experts say the current scale of these actions is unprecedented.

An ACRA spokesperson noted that 17,000 inactive companies were struck off the register in the five years ending 2023, and efforts have intensified since then.

“ACRA has been stepping up efforts to strike off inactive companies,” the spokesperson said, defining these as firms believed to no longer be conducting business.

“This is part of ACRA’s ongoing efforts to reduce the risks of inactive companies being misused for illicit purposes,” the spokesperson added.

These combined efforts, along with plans to tighten rules for corporate service providers, are expected to increase costs for smaller firms operating in Singapore.

However, service providers, who requested anonymity due to client confidentiality, acknowledged that these measures would enhance the quality of data submitted to authorities and close loopholes that have allowed low-quality firms to operate in the city-state. /TISG

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