Corporate Financial Advisory In Singapore: A Comparison of the Regulatory Frameworks Applicable

Companies providing corporate financial advisory in Singapore are governed by the regulations under the Securities and Futures Act (SFA). In the Second Schedule to the SFA, corporate finance advisors are defined as companies giving advice on:

• compliance with the laws and regulations relating to the raising of funds by an entity, trust or a collective investment scheme,
• the purchase or disposal of capital markets products, and/or
• the arrangement, reconstruction or take-over of a corporation or a business trust or any of its assets or liabilities.

Thus, companies that intend to provide corporate finance advisory services such as advising on corporate mergers and acquisitions (M&A) and providing advice on fundraising through an initial public offering (IPO), would need to hold a Capital Markets Services (CMS) licence for advising on corporate finance (even if they are already holding a licence for other regulated activities), unless they meet the criteria for an exemption as set out by Monetary Authority of Singapore (MAS).

Some of these exemptions include corporate finance advisors that fall under the following categories:

• Corporate finance advisors that serve only accredited investors, expert investors or institutional investors.  The advice provided must not be for the offer of capital markets products to the public, nor circulated to the investors’ shareholders, if the investor is a public company or listed on an exchange.
• Corporate finance advisors that provide advice to a related company and the advice is not for the offer of capital markets products to the public, nor circulated to the related company’s shareholders, if the related company is a public company or listed on an exchange.
• Companies that already hold a licence to operate as a bank, merchant bank, finance company or insurance company and regulated by MAS. Such companies are exempted from holding a corporate finance advisory licence, but will be required instead to comply with the representative notification and business conduct requirements under the SFA.

For such corporate finance advisors, they may apply to be regulated as an Exempt Corporate Finance Advisor (ECA) instead of holding a CMS licence.

Although exempt corporate finance advisory firms are restricted in terms of the investors they are able to serve (as they are not allowed to serve retail investors), they benefit from not having to abide by some of the requirements imposed on CMS licence holders such as base capital requirements and professional indemnity insurance requirements. We have highlighted general business conduct requirements between CMS licence holders and exempt corporate finance advisory firms.

All corporate finance advisors, be it those holding a CMS licence or is an exempt corporate finance advisory firm, are required to put in place policies, procedures and controls that commensurate with the nature, scale and complexity of their business. This includes having appropriate compliance function or outsourced to ensure their compliance with relevant laws and regulations, including MAS’ requirements on anti-money laundering and countering of terrorism financing. CMS licence holders and exempt corporate finance advisory firms are required to comply with MAS Anti-money laundering/Countering financing of terrorism (AML/CFT) notices and guidelines.

In conclusion, corporate finance advisors should take into consideration not just their business model and strategy, but also the costs of implementing and maintaining the various requirements of each framework. They should also be aware of their obligations, and non-compliance of these would very likely be detrimental in the long run as they would be viewed as regulatory breaches.

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