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The Monetary Authority of Singapore (MAS) will issue the public consultation document prior to at the close of July proposing measures to enhance security and protection against the risk of money laundering in the fast-growing single family office (SFO) sector.
According to the managing Director Ravi Menon, MAS is looking to make it mandatory for all SFOs to inform the central bank each time they begin operations each year. They will also require the relationship of an MAS-regulated financial institution which is able to conduct checks against money laundering (AML) checks.
The demands are amidst the massive inflows of wealth into Singapore and the country, with Assets under Management (AUM) increasing by an average of 15% between 2017 to 2021. A large portion of this growth was attributed to SFOs opening their doors in Singapore. In the number of SFOs to which received MAS gave tax incentives to grew to 1,100 at the close of 2022, up from 700 in 2021.
Contrary to what many believe, Menon clarifies that the majority of the wealth that flows into Singapore is derived from institutional investors and not family offices, or high-net worth individuals (HNWIs). Individual clients who are not retail (which comprise family offices, customers of private trusts, external asset manager clients, and HNWIs — accounted for just 20% of the rise in total assets managed by Singapore between 2017 and 2021.
SFOs who sought and received tax incentives from MAS had a portfolio of around 90 billion dollars of assets in 2021. That’s just less than% out of $5.4 trillion in assets total that are managed in Singapore the country, he says.
While MAS is attempting to enhance it’s AML policies, Menon notes that family offices in Singapore are already well-protected by the money laundering risk. Most SFOs in Singapore must have an account with the bank in Singapore and thus are under the controls against money laundering by banks in Singapore’s city-state.
Capital can be better utilized for strategic purposes.
The large flows of wealth into Singapore do not have a significant impact on the exchange rate of Singapore as well as the inflation rate in the country, property prices or car prices, Menon says. While wealth is managed in Singapore but the majority of it is accumulated in other countries.
“This means that the money flows are held in foreign currencies, and have any effect upon an SGD change rate. Singapore serves as an intermediary between the flow of these funds,” the expert adds.
In the case of private residential properties the purchase of all foreigners comprised only a small portion of transactions over the last three years averaged at around 4%. In reality, there was no purchase from SFOs during the last three years. In the same way, Menon says SFOs and their foreign employees contribute an “tiny” percentage of the car purchases in Singapore.
In the future, MAS will be adjusting the tax incentives available to SFOs to motivate them to use their capital in a way that will benefit Singapore as well as the entire region and to boost their contributions to social and environmental causes.
The changes are planned for the following five areas.For one, SFOs will be urged to take part with blended financial structures that includes those that aid in the transition of the region towards net zero. The definition of investment eligible for eligibility will be extended in order to encompass blended finance structure as well as concessional capital (which is capital that is willing to accept lower returns or carries higher risk to help spur worthwhile but not as attractive green or transition-related projects) that are invested in these structures will be recognized.
“For each cent of capital concessional that is invested, MAS will recognise it as a minimum of $2 of investment to determine whether the SFO is meeting its investment requirements,” says Menon.
It is expected that the MAS will also recognize the SFOs of climate-related investments around the world in recognition the fact that Climate change has become a worldwide concern and is not constrained by national borders.
To further stimulate SFOs investing in Singapore businesses and in the Singapore equity market MAS is expanding the benefits of tax incentives that will recognize all investments made in not listed Singapore operating companies, instead of investing in private equity only. In addition, MAS will recognise twice the amount invested in Singapore listed equity and also eligible exchange-traded funds as well as unlisted funds that invest predominantly in Singapore-listed stocks.
As time goes on, at minimum an investment specialist employed must be non-family members which will increase the job opportunities for professionals working in Singapore Menon says. Menon. In addition any new SFO applicants will need to fulfill the requirements for business expenses only by spending locally as opposed to previously, when it could be fulfilled by spending abroad. This will allow more benefits to Singapore-based companies and service suppliers.
In addition, MAS will encourage SFOs to participate in charitable activities within Singapore as well as overseas. In addition to recognizing contributions to local charities MAS has also launched the Philanthropy Tax Incentive Scheme (PTIS) to family-owned offices.
The PTIS announcement, made during Budget 2023, will go into effect on January 1st 2024. It will permit qualified donors from Singapore to receive a 100% tax exemption, which is capped to 40% of the donor’s income statutory in the case of overseas donations made through local intermediaries that are qualified.
“We believe that the introduction of PTIS will inspire philanthropic donations to be a routine and professional part of family offices in this country,” says Menon.