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To enhance anti-money laundering (AML) regulations, the Monetary Authority of Singapore (MAS) has announced a unified exemption framework for single family offices (SFOs). Under this new framework, all SFOs must meet specific conditions to legally operate in Singapore. This important initiative is expected to raise compliance standards in Singapore’s wealth management sector and significantly impact institutions applying to establish SFOs.

Background: Addressing AML Risks in Family Offices

Currently, under the Securities and Futures Act of 2001, single family offices operating in Singapore do not require a license. However, to address potential money laundering risks, MAS first sought public feedback on this framework in July 2023 and published its response in early November 2024, detailing the framework’s requirements.

(Source: Internet)

Key Features of the New Framework

1. Source of Funds and Structure

Eligible SFOs may operate through various structures, such as trusts, foundations, or other entities, provided all funds originate solely from family members.

2. Key Personnel Incentive Mechanism

To attract and retain professional talent, the framework allows key non-family personnel in SFOs to hold up to 10% equity. These personnel may include executive directors, CEOs, CFOs, and other investment professionals.

3. Broadened Definition of Family Members

The definition of family members is extended to include in-laws, legally adopted children, and stepchildren, with eligibility tracing back up to five generations.

4. Banking and Reporting Requirements

SFOs must open accounts with banks regulated by MAS and list all bank accounts in their annual filings.

5. Operational Notification Requirement

SFOs must notify MAS within 14 days of commencing operations in Singapore and submit a legal opinion confirming compliance with exemption regulations. This document must be issued by a law firm based in Singapore.

6. Designated Contact Person Requirement

The designated contact person must be an employee directly hired by the SFO and a Singapore resident.

7. Annual Reporting Obligations

SFOs are required to submit annual reports within four months after the end of each financial year to ensure ongoing compliance. MAS will provide further details on the framework’s implementation timeline. Existing SFOs will have a one-year transitional period to adapt to the new requirements.

(Source: Internet)

Implications and Future Prospects

According to McKinsey, Singapore and Hong Kong together account for 15% of the global single-family office market, with the majority of wealth inflows coming from Asia, especially mainland China. McKinsey estimates that by 2030, intergenerational wealth transfer in the Asia-Pacific region will reach approximately USD 5.8 trillion (around SGD 7.8 trillion), presenting an unprecedented growth opportunity for the family office sector.

Despite compliance challenges, Singapore remains a preferred destination for family offices due to its robust financial ecosystem, favorable tax policies, and stable political environment. As of August 2024, Singapore welcomed 250 new SFOs, bringing the total to 1,650. At the Global-Asia Family Office Summit, Transport Minister and Second Minister for Finance S. Iswaran highlighted that assets under management in Singapore’s wealth management sector grew by over 8% last year, with a five-year compound annual growth rate of around 10%.

MAS’s new framework will not only help mitigate financial crimes in the family office sector but also improve operational efficiency and governance standards. These measures are set to foster a healthier, more sustainable development environment, further solidifying Singapore’s position as the preferred hub for family offices in Asia.