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post-title Know your customer regulations for Singapore companies

Know your customer regulations for Singapore companies

Last modified: July 19, 2018

Know your customer regulations for Singapore companies

Know your customer regulations for Singapore companies

The ACRA

Singapore has been improving its regulatory framework for years now in order to bring more accountability to registered companies. The Accounting and Corporate Regulatory Authority (ACRA) works actively in Singapore to improve the business environment so that companies may flourish and thrive. The ACRA is the governing body that regulates Corporate Service Providers (CSPs), public accountants, and firms in the country. In May of 2015, the ACRA created a new framework to regulate company incorporation and on-going corporate filings. This framework was created mainly to minimize the risk of money laundering and terrorism financing in Singapore. As a result, corporate service providers must register as a Filing Agent with the ACRA.

CSPs face penalties and disbarment if they fail to follow the regulations. The government in Singapore, along with international law enforcement, is enacting stricter policies to counteract the major threat of money laundering and the financing of terrorism. Indeed, there has been a growing global focus to fight these activities across borders.

Aim of new regulations

The ACRA created these regulations to protect corporate services providers from unknowingly engaging in illegal activities; most specifically, money laundering and terrorism financing. In addition to the new regulations, the ACRA established guidelines for CSPs in Singapore. These guidelines include internal policies designed to monitor risks associated with registering new companies and to mitigate those risks.

Any company that wishes to either register a new business or simply provide corporate services for a business must comply with these regulations. On the same token, any entity looking to register (incorporate) or hire corporate services must also comply. Firms that fail to follow the guidelines will likely be disbarred by the ACRA. However, those firms could also face additional penalties.

Know Your Customer

Singapore is one of the best places in the world to do business. Service providers register thousands of companies in the small but powerful city-state. However, a number of companies took advantage of the rich economy by laundering money. As a result, the ACRA created the enhanced regulatory framework, explained above, in order to prevent these activities. Entrepreneurs today must obtain KYC (Know-Your-Customer) as an extra precaution to safeguard money laundering attempts.

Components of KYC certificate include the following:

  • Full Name, Identification Proof (e.g. passport copy) and Nationality of each of the Directors, shareholders, and the Ultimate Beneficial Owners of the company;
  • A resolution by the company’s board of directors;
  • Copy of Company’s certificate of incorporation;
  • Copy of the company’s business profile; and
  • Copy of the company’s M&AA

The Monetary Authority of Singapore and ACRA increased their safety requirements so that corporate services providers are responsible in identifying their customer. Once the customer has been identified and documented, providers may proceed with the registration of the company.

Why the new KYC regulations?

The KYC regulations follow the recommendations of the Financial Action Task Force (FATF), an international organization tasked with creating and implementing international standards for financial activities. The objectives of the FATF are as follows: “to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system”.

The FATF’s recommendations are considered the gold standard for combating these illegal activities. Once the FATF establishes regulations, the body also oversees adoption and implementation of the new policies. The FATF monitors the progress of its members in order to protect the global financial system from abuse.

Who is covered?

These new regulations cover any and all Corporate Service Providers (CSPs), or entities that offer various services to both local and foreign clients. CSPs file transactions on behalf of those companies with Singapore’s ACRA. Some examples of services offered by CSPs are listed below:

  • The incorporation of local companies and registration of foreign companies in Singapore
  • Provision of Registered Address service for the client company
  • Acting as company secretary for the client company
  • Provision of local resident director for the client company
  • Filing of annual returns with ACRA for the client company
  • Filing of changes to corporate structure for the client company such as changes in directors, shareholders, share capital, etc.

Requirements for CSPs

REGISTRATION AS FILING AGENT (FA)  

CSPs must register as Filing Agents (FAs), meaning they must carry out filing transactions using the ACRA’s electronic system, as part of the new regulations. Alternatively, Qualified Individuals (QIs) can carry out filing transactions with FAs. The ACRA ultimately permits QI status. Individuals who are not classified as QIs may still carry out transactions with the ACRA’s system under the supervision of a QI.

Not all who apply for FA or QI status are accepted; the Chief Executive of the ACRA rejects applicants who do not meet the requirements set by the Chief Executive. Failure to follow the regulations results in the termination of FA or QI status. The violators can also face additional penalties.

CREATION OF INTERNAL PROCEDURES 

CSPs must record their own policies that prevent money laundering or terrorism financing, either electronically or on paper. These policies must include specific steps to be taken to ensure that clients are monitored accordingly. Often, these policies are based on a risk assessment, in which each customer is evaluated and given an overall level of risk. Clients with higher risk factors are subject to a higher level of scrutiny.

The ACRA created a guide for drafting such internal policies. CSPs can use this template to check their own policies and make sure those policies are up to par. Once the CSP accepts a new client, it must also follow the ACRA’s template regarding the collection of information on the new customer.

RISK ASSESSMENT

As mentioned before, CSPs evaluate potential new clients in order to determine the risk factor of each entity. In order to accurately assess the risk factor, CSPs must consider the following factors:

  • Customer Factors (ownership structure, nature of trade dealings)
  • Country or Territory Risk Factors
  • Service Risk Factors (face to face transactions)

CSPs rank potential customers as either high risk or low risk. CSPs must perform full due diligence with high risk customers, whereas they can adopt simplified measures for low risk customers. Low risk customers are typically public companies listed on the stock exchange, as they are already subject to certain disclosure requirements.

INITIAL DUE DILIGENCE

CSPs must perform due diligence on customers in any of the following situations when:

  • a new business relationship is established,
  • the CSP has reason to suspect that the customer may be laundering money, or
  • the CSP has doubts about the authenticity or accuracy of documents used to identify the customer.

The new regulations require identify verification for all customers and related agents. For example, if the company in question has a beneficial owner (an individual who owns assets and/or has authority over the customer), the CSP must verify the identify of the beneficial owner as well. CSPs can verify identities by collecting the following information:

  • full name
  • identity card or passport number
  • residential address
  • date of birth
  • nationality

Reliable documents and sources must corroborate this information.

ON-GOING MONITORING

After performing initial due diligence and assessing the risk of a customer, the CSP must continue the monitor the client. Ongoing monitoring includes the inspection of transactions between the CSP and the customer to determine whether or not the transactions fit with existing information regarding the customer as well as the customer’s level of risk. Additionally, CSPs may review the level of risk of all clients whenever necessary.

DOCUMENTATION

CSPs must also document and store updated information on all customers. The records must be detailed enough so they may be used for audits. CSPs must hold onto these records during the entire relationship with the customer and for at least five years once the formal business relationship has ended. Acceptable records may be in the form of original documents, photocopies, on microfiche, or in a digital format.

NEW EMPLOYEE HIRES AND TRAINING

When CSPs hire new employees, they must perform screenings to ensure that the applicant in question does not have a record of financial fraud or dishonesty. Additionally, if the applicant previously worked as a filing agent, the CSP must obtain records to determine whether or not their performance on the job was satisfactory and in compliance with regulations.

Once an employee passes the initial screening, the CSP must ensure they are trained in accordance with the following:

  • The ACRA Act and Regulations
  • The Corruption, Drug Trafficking, and Other Serious Crimes Act
  • The Terrorism Act
  • Any other legislation safeguarding against laundering or terrorism financing

Conclusion

The ACRA, following the lead of the FATF, is cracking down on illegal activities among businesses. Given that Singapore has a rich economic climate, regulations are necessary in order to uphold the integrity of the financial industry and to minimize the risk of corruption. CSPs must comply with these new regulations, otherwise known as the Enhanced Regulatory Framework.

 

For more information on business operations in the area, follow our blog. If you’re looking to incorporate your own company (and wish to do so in full compliance of the laws), browse incorporation service providers on our website. Alternatively, you can fill out this form to receive custom recommendations regarding a number of services from our team.

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