The Monetary Authority of Singapore (MAS) will be releasing a public consultation paper before the end of July, proposing measures to step up surveillance and defence against money laundering risks in the fast-growing single family office (SFO) sector.
According to managing director Ravi Menon, MAS is seeking to require all SFOs to notify the central bank when they commence operations and every year. They are to also maintain a business relationship with an MAS-regulated financial institution that would perform anti-money laundering (AML) checks.
The requirements come amid the large inflows of wealth into Singapore, with assets under management (AUM) growing at an average of 15% between 2017 and 2021. Part of the growth was contributed by SFOs setting up shop here. The number of SFOs that were awarded tax incentives by the MAS grew to 1,100 as at end-2022, from 700 recorded in 2021.
However, contrary to popular belief, the bulk of wealth flowing into Singapore comes from institutional investors, not family offices or high-net-worth individuals (HNWIs), Menon clarifies. Non-retail individual clients — which includes family offices, clients of external asset managers, private trusts and HNWIs — made up only 20% of the increase in total assets managed in Singapore from 2017 to 2021.
SFOs that applied for and were granted tax incentives by MAS managed about $90 billion of assets as at 2021, less than 2% of the $5.4 trillion total assets managed in Singapore, he adds.
Although MAS is seeking to strengthen its AML measures, Menon notes that family offices in Singapore are already substantially covered for money laundering risks. The majority of SFOs in Singapore are required to have an account with a bank in Singapore and are thus subject to the anti-money laundering controls applied by the banks in the city state.
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More purposeful deployment of capital
Singapore’s large inflows of wealth have no significant impact on the country’s exchange rate, domestic inflation, property prices or car prices, Menon says. This is as while wealth is managed within the country, most of it is invested outside of Singapore’s shores.
“This means that the wealth inflows typically remain in foreign currencies and have little or no effect on the SGD exchange rate. Singapore is just an intermediary for these flows,” he adds.
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When it comes to private residential properties, purchases by all foreigners accounted for a low share of transaction volume over the last three years, averaging at about 4%. In fact, there were no purchases by SFOs in the past three years. Likewise, SFOs and their foreign employees account for a “tiny” portion of car purchases in Singapore, Menon says.
Moving forward, MAS will be adjusting the tax incentives for SFOs to encourage them to deploy their capital more purposefully to benefit Singapore and the region, as well as increase their contributions towards environmental and social causes.
The enhancements will be made in five areas.For one, the SFOs will be encouraged to participate in blended finance structures, including those which support the region’s transition to net zero. The scope of eligible investments will be broadened to include blended finance structures and concessional capital (which refers to capital that accepts lower returns or higher risks to catalyse worthwhile but less attractive green and transition projects) invested in such structures will be recognised.
“For every dollar of concessional capital invested, MAS will recognise it as equivalent to up to $2 of investments for the purpose of assessing if the SFO has met its investment requirement,” says Menon.
The MAS will also recognise the SFOs’ climate-related investments anywhere in the world, acknowledging that climate change is a global problem not bounded by national borders.
To further encourage SFOs to invest in Singapore companies and the local equity market, MAS will expand the scope of tax incentives to recognise all investments in non-listed Singapore operating companies instead of just private equity investments. Secondly, MAS will recognise twice the amount invested in Singapore-listed equities as well as eligible exchange-traded funds and unlisted funds which invest primarily in Singapore-listed equities.
Moving forward, at least one of the investment professionals hired should be a non-family member — this will expand the pool of available jobs for professionals in Singapore, says Menon. Additionally, all new SFO applicants will have to meet the business spending requirement solely from spending locally, unlike previously when it could be met with overseas spending. This will help channel greater benefits to Singapore-based businesses and service providers.
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Lastly, MAS will encourage SFOs to conduct philanthropic activities through Singapore both locally and overseas. Aside from recognising donations to local charities, MAS is also launching the Philanthropy Tax Incentive Scheme (PTIS) for family offices.
The PTIS, which was announced in Budget 2023, will take effect on Jan 1, 2024. It will allow qualifying donors in Singapore to claim 100% tax deduction, capped at 40% of the donor’s statutory income, for overseas donations made through qualifying local intermediaries.
“We hope the introduction of PTIS will encourage philanthropic giving to become a regular, professional feature of family offices here,” says Menon.
