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Regulatory Developments Affecting Financial Advisers

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Wee Teck Lim

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23 July 2019

The MAS recently issued Guidelines on Provision of Financial Advisory Services, which set out the approach of the MAS to determining whether a person is providing financial advisory services in Singapore. In a separate development, it clarified recently that a financial adviser that ceases business will only have its licence cancelled once it can show that it has properly discharged its obligations to its clients or has a good reason for not doing so.

Guidelines on Provision of Financial Advisory Service

The Monetary Authority of Singapore (MAS) issued the Guidelines on Provision of Financial Advisory Service (Guidelines) on 10 July 2019. This set out guidelines on when the MAS will regard someone as providing a financial advisory service that requires licensing. In addition to setting out the factors that the MAS uses in making such an assessment, it also includes specific examples and discusses the specific issues of traders disseminating research reports and portfolio allocation recommendations.

In considering whether a particular person is providing a financial advisory service in Singapore that requires licensing, the MAS adopts the following two-stage test:

  • Whether the activity amounts to providing financial advice.
  • Whether the person is carrying on a business of providing financial advice.

What amounts to providing financial advice

In considering whether financial advice is being provided, the following factors will be considered and weighed:

  • Whether the activity involves the provision of factual information on the investment product, or whether it involves, directly or indirectly, an expression of opinion on the investment product. Factual information should be set out in a balanced way.
  • Whether the provision of information includes disclaimers that it is not intended to be financial advice. The Guidelines caution, however, that the inclusion of disclaimers is not a cure-all: a recommendation to buy product X because it has high returns would evidently not be redeemed simply by appending an accompanying line that the statement is not intended as financial advice.
  • Whether it is provided in a situation where the recipient is not reasonably expected to rely on it in making an investment decision. In this regard, the following factors will be considered: o Whether the information provided is generic and not tailored to the investment needs of the recipient.
  • Whether the communication recommends a course of action in relation to an investment product or a class of investment products.
  • Whether the provider of the opinion purports (or does not purport) to be in the business of providing financial advice. Whether it is being carried on as a business In considering whether the provider of the advice is doing so as a business, the MAS will consider the following:
  • Whether the advice is given systematically and with continuity.
  • Whether the person is remunerated for the advice.

MAS’ application of the tests

In applying the above tests, the MAS has stated (in its Response to the Feedback on the Consultation Paper on the Guidelines on Provision of Financial Advisory Service) that the factors are to be assessed in their entirety and there will be no weights assigned to the factors. The MAS’ assessment would consider the particular context and circumstances of the activity in question. This approach is likely intended to make it difficult for potential participants to try to "game the system" by designing around a set of restrictions. The MAS’ intent is not, however, to impose licensing requirements on persons who are genuinely not intending to provide financial advice. In this regard, the Response does also state that persons who are not providing financial advisory service are encouraged to provide a disclaimer clarifying this.

Specific situations addressed in the Guidelines

The Guidelines also address various common and specific issues. Passive distribution conduits would not be providing financial advice provided that they:

  • Only reproduce or distribute reports that originate from licensed or exempt financial institutions regulated by the MAS;
  • Attribute the reports accurately;
  • Do not exercise editorial control over, or modify the contents of the reports; and
  • Do not endorse or otherwise comment on the reports.

In this regard, the Response clarifies that a salesperson or trader who disseminates research reports, and satisfies the above conditions will be considered a passive distribution conduit. Foreign research houses that issue or promulgate research reports to investors in Singapore may be exempted from the requirement to hold a financial adviser’s licence under a tie-up arrangement with a licensed or exempt financial adviser in Singapore, or pursuant to an MAS-approved arrangement under the ASEAN Capital Markets Forum professional mobility initiative.

The Guidelines also state that portfolio allocation advice, which does not involve recommendations on a specific investment product or class of investment products, would not be financial advice. Aggregator tools providing a comparison of products that do not provide recommendations or a tailored list of products would not be likely to be financial advice.

Cessation of business by a financial adviser

A recent separate development is the clarification by the MAS that a financial adviser that ceases business will only have its licence cancelled by the MAS once it can show that it has properly discharged its obligations to its clients or has a good reason for not doing so. This was set out in its updated FAQs on Financial Advisers Act, Financial Advisers Regulations, Notices and Guidelines (Financial Advisers FAQs).

Question 10 of the Financial Advisers FAQs, which deals with the cessation of a business by a financial adviser, has been amended to make it clear that the cancellation of the financial adviser's licence is subject to the MAS being satisfied that the financial adviser has properly discharged its liabilities to its clients upon the winding down of the business. Among other things, it requires that a financial adviser do the following:

  • It must put in place communication plans to ensure a sufficient notice period has been given to its clients, business partners and other relevant stakeholders regarding its cessation.
  • It must discharge all client obligations and liabilities before it ceases business.
  • Together with filing form 5 on cessation of business, it must provide the MAS with an auditor's certification that it has fully discharged all client obligations and liabilities before ceasing its business. If the certification cannot be provided, the financial adviser must engage with the MAS and provide adequate reasons for its inability to secure an auditor’s certification.

The licence is not cancelled until confirmation of cancellation is received from the MAS. Until the effective date of cancellation of the licence, the financial adviser remains subject to all the requirements of the licensing and regulatory regime.