Singapore Family Offices: Paving The Way Towards Quality Over Quantity

Since establishing itself as a hub for family offices some years back, about 1,400[1] single family offices[2] (SFOs[3]) have set up shop in Singapore (up from 700 in 2021). The rapid increase in the number of family offices within the city state has sparked questions about the impact of these family offices and their various stakeholders. Questions have come to the fore in recent times as to why they have established themselves in Singapore, the intentions of the stakeholders, and whether these families have actual commitment to our city state. 

In the wake of Singapore’s continued popularity among family offices, regulatory scrutiny has intensified, particularly concerning beneficial ownership and transparency standards. As part of its efforts to address such concerns, the Monetary Authority of Singapore (MAS) had previously tightened the prevailing conditions for tax incentives targeted at single family offices in July 2023 (the 5 July 2023 Conditions, which superseded the previous 18 April 2022 Conditions[4]). A common thread has become noticeable in all these changes: to address money laundering risks and ensure that financial institutions guard against such risks that their customers, including SFOs, may pose to Singapore.

On 31 July 2023, MAS published a consultation paper setting out its enhanced regulatory framework for SFOs in Singapore[5], proposing a series of additional measures to strengthen its surveillance and defence against potential money laundering risks posed by SFOs, such as harmonising the criteria for SFOs to be exempt from licencing under the SFA of Singapore (dubbed the ‘class exemption’), and the introduction of new notification and reporting requirements to better monitor SFOs operating in Singapore. To safeguard against money laundering risks, and for an SFO to conduct fund management in Singapore under the class exemption, an SFO must be able to meet the following four key criteria:

(a) It must be wholly owned (whether directly or indirectly) by members of the same family[6].

(b) The fund management must be conducted on behalf of: (i) family members, including family trusts and corporations wholly owned by and for the sole benefit of the family; (ii) charitable organisation(s) funded exclusively by the family, save that it may also conduct fund management for or on behalf of key employees (which refer to the chief executive officer and executive directors of the SFO).

(c) It must be incorporated in Singapore.

(d) Establish and maintain business relations with at least one MAS-regulated financial instituted listed by MAS.

All SFOs operating in Singapore will thus be subject to beneficial ownership requirements for Singapore incorporated companies under the Accounting and Corporate Regulatory Authority, and anti-money laundering and countering the financing of terrorism (AML/CFT) checks by MAS-regulated financial institutions. Collectively, these measures are aimed at ensuring adequate AML/CFT safeguards over SFOs operating in Singapore[7]. To qualify under the proposed framework, within seven days of commencing operations the SFO would also need to provide its key particulars and a legal opinion that the SFO meets the qualifying criteria. There have been questions as to how existing SFOs would comply with the proposed framework, but we expect MAS to provide further details for the proposed framework prior to its implementation.

Since December 2023, MAS has also extended the scope of due diligence checks to a wider group of individuals and entities associated with the single-family offices that are applying for MAS tax incentives[8]. Depending on the screening results, tax incentive applicants may be required to provide additional documents, information and forms of assurance, such as a statutory declaration or certificate of non-criminality, should there be any adverse results that cannot be conclusively excluded or attributed to the relevant applicant. This has been done in part as a response to events that happened in the country in or around that time, which tarnished Singapore’s image and exposed weaknesses in how local and foreign banks and brokerages screen their clients[9], and also as part of its ongoing efforts to ensure that the ultra-high net worth families that come here are fit and proper, as well as of a very high quality. It has also been stated that MAS would appoint a panel of specialised firms to conduct screening checks on tax incentive applicants for money laundering and terrorism financing risks. Such details can be expected to be released in the months to come[10].

In early May 2024, funds managed by family offices (SFO Funds) that have been granted tax exemptions were also given new forms requesting greater detail. According to the annual forms that must be submitted to MAS, SFO Funds must now confirm that their beneficial owners, directors, representatives and shareholders have never committed, been convicted of, or even been charged with money laundering or terrorist financing offences. They must also confirm that the assets under management adhere to domestic capital-control regulations, and the fund management company is not facing regulatory actions by any authority in the world[11].

These additional measures, while seemingly arduous, underscores MAS’ commitment to maintaining regulatory integrity and upholding Singapore’s reputation as a trustworthy and upright jurisdiction for wealth management activities. By continuing to offer tax incentives to genuine ultra-high net worth families offices committed to fostering local economic growth and adhering to rigorous regulatory standards, it has become very clear that MAS’ goal is to ensure that such family office structures also enjoy long-term sustainability and firmly integrate into Singapore’s financial ecosystem.

Moreover, the recent changes also reflect MAS’ strategic approach to differentiate Singapore’s family office landscape from its counterparts, such as Hong Kong. While it seems Hong Kong may have surpassed Singapore in sheer numbers of family offices following its own policy adjustments[12], MAS remains steadfast in its emphasis on quality over quantity. By prioritising transparency, regulatory compliance, and substantive contributions to the local economy (through the continued refinement of the applicable tax incentives[13]), MAS aims to also ensure that there are high-calibre family offices which can align their investment strategies with the goals of Singapore.

In light of these developments, it has become imperative to assess the implications for both existing and prospective family offices operating in Singapore. Singapore cannot be and cannot be seen to be just a jurisdiction to be used as a family’s Plan B. Being here requires families to have actual physical and economic commitments that will incentivise local investment and support purposeful contributions. The heightened regulatory scrutiny and emphasis on meeting stringent criteria necessitates greater diligence and more resources on the part of applicants, which means more things for them to consider when making decisions as to whether to plant roots and to manage their wealth in Singapore. That said, for those who recognise the value proposition of Singapore, the benefits of securing the tax incentives offered by the government and operating for the long term within a well-regulated environment, such increased scrutiny will only ensure Singapore’s status as a dynamic and purposeful financial centre, as well as support growth and opportunity in its neighbouring countries which is the overarching goal of the regulators[14].

 

[1] Lawrence Wong, Deputy Prime Minister and Minister for Finance, and Chairman of MAS, ‘Written reply to Parliamentary Question on family offices’ dated 6 March 2024 ( <https://www.mas.gov.sg/news/parliamentary-replies/2024/written-reply-to-parliamentary-question-on-family-offices#1>

[2] which have been awarded tax incentives by MAS.

[3] Pursuant to MAS FAQs on the Licensing and Registration of Fund Management Companies, the term ‘single family office is not defined under the Securities and Futures Act 2001 of Singapore (“SFA”). An SFO typically refers to an entity which manages assets for or on behalf of only one family and is wholly owned or controlled by members of the same family.

[4] a summary and comparison of the conditions has been covered extensively in the following IFC article: Ow Kim Kit & Ors, ‘Family Offices in Singapore – An Update & Recent Trends’ <https://www.ifcreview.com/articles/2023/july/family-offices-in-singapore-an-update-recent-trends/>

[5] ‘Consultation Paper on Proposed Framework for Single Family Offices’ dated 31 July 2023 <https://www.mas.gov.sg/-/media/mas/news-and-publications/consultation-papers/2023-consultation-paper-on-proposed-framework-for-single-family-offices/consultation-paper-on-proposed-framework-for-single-family-offices.pdf>

[6] pursuant to paragraph 3.6 of the Consultation Paper (supra), MAS intends to define family members as lineal descendants of a common ancestor (living or deceased), including current and former spouses, adopted children and current and former stepchildren. Under this approach, the family is permitted to define family members by referring to the lineal kinship to a designated common ancestor, which should not be an extremely remote ancestor.

[7] paragraph 3.8 of the Consultation Paper (supra).

[8] the tax incentive schemes for family offices are awarded under sections 13O and 13U of the Income Tax 1947 of Singapore. For more information, please visit MAS at <https://www.mas.gov.sg/schemes-and-initiatives/fund-tax-incentive-scheme-for-family-offices>

[9] The Straits Times, ‘Singapore banks probe rich clients after S$3 billion money laundering case’ dated 10 June 2024 <https://www.straitstimes.com/business/singapore-banks-probe-rich-clients-after-3-billion-money-laundering-case>.

[10] MAS, Safeguarding against Money Laundering Risks<https://www.mas.gov.sg/development/wealth-management>

[11] The Straits Times, ‘Singapore ramps up scrutiny of family offices, hedge funds’ dated 11 June 2024 <https://www.straitstimes.com/business/singapore-ramps-up-scrutiny-of-family-offices-hedge-funds>

[12] Deal Street Asia, ‘Hong Kong surpasses Singapore with over 2,700 single-family offices’ dated 19 March 2024 <https://www.dealstreetasia.com/stories/hong-kong-surpasses-singapore-in-family-offices-388211>

[13] this is part of a series of ongoing initiative by the regulators since 2022, where single family offices applying for tax incentive schemes were required since April 2022 to allocate at least 10% or S$ 10 million of their assets to local investments. This remains an ongoing requirement by MAS and this amount is expected to be maintained throughout the incentive period.

[14] Alvin Tan, Minister of State, Ministry of Trade and Industry and Ministry of Culture, Community and Youth, and Board member of MAS, on behalf of Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS, ‘Reply to Parliamentary Question on working with family offices to deepen investment in local companies per Parliament Sitting’ dated 5 October 2022 <https://www.mas.gov.sg/news/parliamentary-replies/2022/reply-to-parliamentary-question-on-working-with-family-offices-to-deepen-investments-in-local-companies>