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Regulatory changes a catalyst for corporate service providers to raise their game: Opinion

Regulatory changes a catalyst for corporate service providers to raise their game: Opinion

Source: Business Times
Article Date: 15 May 2024

The introduction of steep penalties for non-compliance poses significant implications for business competitiveness, particularly for smaller firms concerned that compliance costs and financial risks may impact the viability of operations.

As Singapore prepares to roll out the proposed Corporate Service Providers (CSP) Bill, it presents an opportunity to reflect on how the city-state can continue to attract new businesses while maintaining its reputation as a clean and trusted financial hub. Additionally, with the introduction of stricter regulations, what opportunities do industry players have to innovate and enhance standards?

The CSP Bill extends the regulations to previously unregulated activities, such as specific accounting and corporate secretarial tasks. This closes a key regulatory gap identified by the Accounting and Corporate Regulatory Authority (Acra), ensuring that all entities offering such services must register and comply with strict anti-money laundering and countering of the financing of terrorism (AML/CFT) requirements.

It is important to note that most existing CSPs already comply with these rigorous regulations. As such, the primary impact of the new Bill is the heightened financial risk due to increased penalties for non-compliance, which may entail a reassessment of risk management strategies rather than overhauling existing compliance processes.

However, the introduction of steep penalties for non-compliance, with fines of up to S$100,000 per breach, poses significant implications for business competitiveness, particularly for smaller firms concerned that compliance costs and financial risks may impact the viability of operations.

Another area of focus of the CSP Bill is the stringent management of nominee directorships to prevent misuse for illicit activities. All nominee directors must be assessed as “fit and proper” before their appointment, involving more rigorous background checks and ongoing monitoring.

While these regulations enhance Singapore’s reputation as a secure and trustworthy financial hub, they also pose significant challenges. There are, however, potential opportunities to balance the effectiveness of regulation with the flexibility for CSPs to up their game.

Platforms that enhance due diligence and compliance processes

Pivoting to big data and global resources could complement or even boost CSPs’ specialised knowledge. Many CSPs utilise systems such as World-Check as a part of their KYC (know your customer) due diligence of every potential client. The reliance on such systems and internal controls enables CSPs to perform detailed verifications and better understand the companies they work with. Such technology significantly reduces manual workload and increases the reliability of compliance checks.

The Monetary Authority of Singapore has launched the Cosmic (Collaborative Sharing of Money Laundering/Terrorism Finance Information & Cases) platform with six commercial banks in Singapore to make it easier to detect criminal activity by sharing information on customers that exhibit potential financial crime concerns. Similarly, a possible GovTech collaborative platform linked to Acra can allow CSPs to spot potential client “red flags” and reduce some compliance costs that come with multiple checks on a potential client that has been previously bad-listed.

Proactive government support and initiatives

Government support becomes crucial with the potential for increased costs associated with compliance. Subsidies, grants, or tax incentives for CSPs investing in necessary technologies would mitigate financial burdens, particularly for smaller firms. Additionally, regulatory sandboxes could allow CSPs to experiment with new technologies and compliance methodologies in a controlled environment, encouraging innovation while ensuring regulatory standards are met.

The government can also consider roadshows and seminars to guide CSPs on the changes, providing a list of recommended providers, panels, guidelines and templates, especially regarding Data Protection Officers.

CSPs can also gain support from the government when partnering with agencies such as the Singapore Economic Development Board, Enterprise Singapore and, possibly, venture capitalists.

Future considerations for risk-based approach

As the risk landscape evolves over the years, the government can consider categorising the level of AML/CFT conducted and adjust regulations accordingly based on industry feedback. This could include a simplified KYC process for certain groups of clients, adopting a more risk-based approach rather than applying one-size-fits-all rules.

In an industry that makes business work, CSPs are entrusted to help companies comply with many business and regulatory requirements. As Singapore continues to attract foreign investors and companies to set up here, having a credible and high-standards CSP sector will invariably attract quality companies.

As Singapore rolls out the CSP Bill, now is the time for industry players to embrace these changes as a catalyst for innovation and lead the way in setting new standards for compliance and operational efficiency. This shift towards a more rigorous regulatory environment is not just a mandate – it’s an opportunity to elevate the CSP sector, solidify its role as the first line of defence for AML/CFT activities and bolster Singapore’s reputation as a global business hub.

The writers are from Mazars in Singapore. Justin Lim is partner, head of outsourcing (Singapore) and head of corporate secretarial (Apac); and Athreya HD is partner – Singapore, consulting (financial services).

Source: Business Times © SPH Media Limited. Permission required for reproduction.

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