The Corporate Service Providers Bill and the Companies and Limited Liability Partnerships (Miscellaneous Amendments) Bill were passed by the Parliament of Singapore on 2 July 2024.
These landmark legislations mark a significant step forward in Singapore’s ongoing efforts to combat financial crime and align with international regulatory standards.
These legislative changes will have far-reaching implications for businesses operating in Singapore, particularly those providing corporate services or utilising nominee arrangements.
Overview of the Corporate Service Providers
The Corporate Service Providers (CSP) Bill is a pivotal piece of legislation with the following primary objectives:
- Combat financial crime, including money laundering, terrorism financing, and the proliferation of weapons of mass destruction.
- Ensure Singapore’s regulations for the CSP sector align with the standards set by the Financial Action Task Force (FATF).
- Level the playing field for all CSPs operating in Singapore by establishing uniform regulatory requirements.
Changes Introduced
- All business entities providing corporate services in and from Singapore are now required to register with ACRA as CSPs, regardless of whether they file transactions on behalf of their customers.
- Registered CSPs must comply with obligations related to anti-money laundering, countering the financing of terrorism, and preventing the proliferation of weapons of mass destruction (AML/CFT/PF obligations).
- The bill introduces fines and criminal liability for breaches of these obligations by registered CSPs and their senior management.
- Persons are prohibited from acting as nominee directors by way of business unless their appointments are arranged by registered CSPs and they have been assessed as fit and proper.
Scope of Application
The CSP Bill applies to a wide range of entities.
- Companies and other business entities that provide any corporate service in Singapore, even if they do not file transactions with ACRA on behalf of their customers.
- Entities that carry on a business in Singapore of providing the corporate service of carrying out any designated activity in relation to the provision of accounting services.
- Existing Registered Filing Agents (RFAs) who will transition to becoming registered CSPs.
Exceptions and Special Cases
Public Accounting Entities under the Accountants Act are deemed registered as CSPs if they do not provide any corporate services other than carrying out designated activities related to the provision of accounting services. However, they must provide ACRA with details of at least one registered qualified individual.
The registration requirements only apply to business entities and do not include individuals transacting with ACRA as authorised employees of a registered CSP.
Designated Activities in Relation to Accounting Services
Not all accounting service providers are required to register as CSPs. Only those carrying out designated activities in relation to the provision of accounting services must register.
These designated activities include:
- Buying or selling of real estate.
- Management of client monies and bank accounts.
- Organisation of contributions for the creation, operation, or management of corporations.
- Buying and selling of business entities.
Accounting services in this context refer to financial accounting services, internal audit services, management accounting services, or taxation services.
Penalties for Non-Registration
Entities that fail to register as CSPs when required face significant penalties.
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- A fine of up to SGD 50,000
- Imprisonment for a term of up to two years
- Both fine and imprisonment
- In the case of a continuing offence, an additional fine of up to SGD 2,500 for every day or partial day during which the offence continues after conviction
New AML/CFT/PF Obligations for CSPs
Customer Due Diligence Requirements
Registered CSPs must perform customer due diligence measure.
- Before providing any corporate service to a customer
- When they have reason to suspect money laundering, terrorism financing, or proliferation financing
- When they doubt the veracity or adequacy of previously obtained information
It is crucial to note that customer due diligence measures must be completed before any transactions are lodged with ACRA.
Counter-Proliferation Financing Measures
The implementation of counter-proliferation financing (CPF) measures will be similar to existing duties to counter money laundering and terrorism financing.
The requirements include:
- Screening against sources of information like the United Nations Act
- Implementing measures prescribed in subsidiary legislation
- Following guidelines to be published by ACRA to raise awareness and understanding of proliferation financing
Group-Wide Policy Requirements
CSPs will be required to implement group-wide programs.
- Policies and procedures for managing and mitigating the risk of money laundering, terrorism financing, and proliferation financing
- Information sharing within the group, such as amongst subsidiaries
Penalties for Non-Compliance
- (For both registered CSPs and senior management of a registered CSP who fails to ensure compliance) A fine not exceeding SGD 100,000 per breach
Transition Period
The exact timeline for implementation is yet to be announced, but ACRA has indicated that the effective date of commencement will be communicated in advance.
Necessary lead time will be provided for CSPs to implement changes per the legislative requirements. Amendments may potentially commence in stages.
CSPs are advised to start preparing for these new obligations as soon as possible to ensure smooth compliance when the regulations come into effect.
Changes to Nominee Director Appointments
It was briefly mentioned above that the bill introduced changes to the appointment of nominee directors. The prohibition on acting as nominee directors without CSP involvement does not apply to employees appointed as directors for their company or a related company.
A person who breaches this requirement is guilty of an offence and shall be liable on conviction to a fine not exceeding SGD 10,000.
Factors Considered in Fit and Proper Assessments
More detailed guidelines will be provided in the subsidiary legislation. Nonetheless, CSPs should consider the following factors when assessing whether an individual is fit and proper.
- Satisfactory conduct and compliance
- Sufficient competency, capacity, and capability to properly discharge duties as a director
- Evidence of commercial integrity
Ongoing Monitoring Requirements
The obligation to determine that a nominee director satisfies fit and proper requirements is required at the time of arrangement and is not continuous.
While not mandatory, it is recommended to periodically refresh the fit and proper assessment, particularly if the individual is arranged to act as a nominee director for many of the CSP’s clients.
Implementation and Transition
The new requirement for fitness and propriety assessment will not apply retrospectively to existing nominee director appointments.
Regarding updates to internal policies, CSPs must review and update their internal policies to incorporate procedures for determining if an individual is fit and proper to act as a nominee director.
ACRA will provide more details in the subsidiary legislation and guidelines to help CSPs determine how to apply fit and proper requirements.
Transparency Measures in the CLLPMA Bill
The Companies and Limited Liability Partnerships (Miscellaneous Amendments) Bill or shortly known CLLPMA Bill introduces transparency measures to enhance the disclosure of beneficial ownership and nominee arrangements in Singapore.
These changes align with international standards and strengthen Singapore’s position in combating financial crimes.
Disclosure Requirements for Nominee Directors and Shareholders
Companies and foreign companies are required to file all information kept in their registers of nominee directors and nominee shareholders with ACRA. ACRA will maintain central registers of nominee directors and shareholders.
Information to be disclosed
- The nominee status of directors and shareholders
- The identities of their nominators
Filing Process
ACRA will notify companies ahead of time about the timeline and means to file this information. Companies and their Registered Filing Agents/CSPs will be given a specific timeframe to comply with these new filing requirements.
Public Availability of Nominee Status
Upon disclosure to ACRA, the nominee status of directors and shareholders will be publicly available. This information will be added to business profile extractions.
While the nominee status will be public, only public agencies may access the full information maintained by ACRA. This access is limited to the administration or enforcement of any written law.
The public availability of nominee status can trigger additional scrutiny and customer due diligence by AML-obligated entities. This measure aims to further mitigate money-laundering risks by improving the transparency of nominee arrangements.
Increased Fines for Non-Compliance with Registration Requirements
The maximum fines for offences pertaining to the registration of registrable controllers, nominee directors, and nominee shareholders have been increased from SGD 5,000 to SGD 25,000.
Scope of Increased Fines
- (For companies) Applies to the register of registrable controllers, the register of nominee directors, and the register of nominee shareholders
- (For limited liability partnerships) Applies to the register of registrable controllers
Purposed of Increased Fines
- Ensure the accuracy of information maintained in entities’ registers, and
- Make the fines appropriately dissuasive and in line with FATF’s recommendations
Impact on Existing Registered Filing Agents (RFAs)
Existing RFAs will automatically transition to become registered CSPs under the new regime. RFAs will be granted registration as a CSP to perform filing for their clients.
The registration as a CSP will be valid until the expiry date of their current RFA registration. Current RFAs do not need to register afresh as CSPs.
Potential Challenges and How to Address Them
Increased Compliance Costs
The new regulations may lead to increased costs in operations due to enhanced compliance requirements, particularly for smaller CSPs or businesses that weren’t previously regulated.
How to Address:
- Conduct a cost-benefit analysis to identify areas where compliance can be streamlined.
- Invest in technology and automation to reduce manual compliance work.
- Consider outsourcing certain compliance functions to specialised service providers.
- Explore shared services models with other small CSPs to distribute costs.
Operational Adjustments
Implementing new procedures may require significant changes to existing operations.
How to Address:
- Begin planning and implementing changes well before the compliance deadline.
- Prioritise critical changes and implement them gradually.
- Provide comprehensive training to staff on new procedures and requirements.
- Review and update operational procedures regularly.
Data Management and Privacy Concerns
The enhanced requirements on disclosure may raise concerns about data management and privacy.
How to Address:
- Implement robust data protection measures to safeguard sensitive information.
- Communicate the new disclosure requirements to your clients and how their data will be handled.
- Ensure that you fully comply with SG’s Personal Data Protection Act in all data handling processes.
- Audit data management practices to see if there are vulnerabilities you should address.
Assessing Fitness and Propriety of Nominee Directors
CSPs may find it challenging to develop and implement effective processes for assessing the fitness and propriety of nominee directors.
How to Address:
- Develop clear, objective criteria for fitness and propriety assessments based on ACRA guidelines.
- Implement a standardised assessment process.
- Review and update assessment criteria from time to time based on regulatory changes and best practices.
Keeping Up with Regulatory Changes
The phased implementation of the new regulations and potential future updates may make it difficult for businesses to stay compliant.
How to Address:
- Assign a dedicated team or individual to monitor regulatory updates from ACRA and other relevant authorities.
- Participate in industry associations and forums to stay informed about regulatory trends and best practices.
- Implement a system for regular policy and procedure reviews to incorporate regulatory changes.
- Consider engaging with regulatory consultants for guidance and support.
Client Education and Management
Clients may be resistant to these new requirements, particularly enhanced due diligence measures and disclosure of nominee arrangements.
How to Address:
- Proactively communicate with clients about upcoming changes and their implications.
- Develop clear, concise materials explaining the new requirements and their benefits.
- Offer support and guidance to clients in meeting new compliance obligations.
- Consider hosting webinars or seminars to educate clients on the new regulatory landscape.
Technology Integration
The implementation of these new systems may be technically challenging and costly.
How to Address:
- Conduct a thorough assessment of current technology infrastructure and identify gaps.
- Research and invest in compliance management software that can automate key processes.
- Consider cloud-based solutions that can be scaled as needed and reduce upfront costs.
- Make sure that the new systems are properly integrated with existing ones to maintain the efficiency of operations.
Conclusion
As the implementation date approaches, it is crucial for all affected entities to start preparing now. Companies offering Singapore incorporation services should view these regulations as an opportunity to improve their practices and provide added value to their clients.
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