The regulatory position in Singapore, as far as family offices and other institutions in the wealth management space are concerned, is becoming more challenging. This article sets out the big picture.

The wealth sector in Singapore, including its family offices field, needs to become attuned to a more proactive and stern regulatory approach. 

Philippa Allen, managing director, head of regulatory compliance, Asia at IQ-EQ writes on why with great wealth comes increased regulatory scrutiny for the wealth management and family office sector in Singapore.

The editors are pleased to share these insights; the usual editorial disclaimers apply. Jump into the conversation! Email tom.burroughes@wealthbriefing.com

A decade ago, Singapore had a fraction of its current millionaire population, yet with a significant surge in the last 10 years the count sits at nearly 250,000 today. Fuelled by robust economic growth, rising incomes, and burgeoning entrepreneurship, this dynamic environment has created a thriving family office sector, with an increasing demand for sophisticated wealth management services. Yet, a single misstep in regulatory compliance could spell disaster for this growing sector. 

With great wealth, comes increased regulatory scrutiny 
As the private wealth sector in Asia grows, so does regulatory scrutiny. Just last year, Singapore witnessed a high-profile scandal, underscoring the vital importance of stringent internal control measures. In an effort to ensure that money is not moved from the illegal to the legitimate economy, regulators in Asia Pacific have noticeably stepped-up scrutiny of anti-money laundering (AML) and know-your-customer (KYC) controls in the wealth management sector. In 2022, Singapore implemented significant enhancements to its AML and countering the financing of terrorism (CFT) frameworks for family offices to strengthen the local regulatory environment. This year, AML rules were further tightened to cover cryptocurrency players, while additional controls were announced on digital payment token service providers. 

In the last few months – according to annual forms that must be submitted to MAS by family offices with tax exemptions – such firms must confirm that directors, owners and shareholders have never committed or been convicted of money laundering or terrorist financing offences. 

The message is clear: regulatory compliance is no longer optional but a fundamental part of doing business in Asia's wealth management sector. These changes have significant implications for family offices and smaller external asset managers (EAMs), pushing them to adopt more robust compliance practices. 

The scalability challenge for family offices and smaller EAMs
Scaling operations to meet increasing regulatory demands is a significant challenge for family offices. The complexity of cross-border considerations when investing or dealing with clients adds another layer of difficulty that requires thorough implementation of compliance rules regardless of the operational size. 

For EAMs with smaller operations it can be difficult to ensure that all applicable rules and laws are assessed and then implemented correctly in their organisation without compromising operational efficiency. Although regulators accept that these firms have a different level of compliance, EAMs cannot become complacent and see themselves as exempt from tightening rules. Smaller EAMs must adopt a proactive approach to compliance, leveraging the experiences and best practices of multi-family offices which are also regulated to navigate the complex regulatory landscape effectively. 

For EAMs and family offices, striking the right balance is crucial; a "tick the box” approach to compliance can lead to increased costs, reduced flexibility, and missed opportunities. Strategies for effective compliance implementation and testing should be in place and include staying on top of the latest regulations and conducting comprehensive risk assessments. 

An implementation process factoring in independent testing, robust incident management and meticulous record-keeping is essential. In this world of increased regulatory scrutiny family offices must navigate this delicate balance to sustain their growth while maintaining appropriate compliance standards. In this respect, working with regulators, opening dialogue with industry peers and partnerships and with the right compliance experts are all critical to maintaining robust compliance programmes.

Outsourced compliance services
Recognising the growing trend for using external compliance advisors, regulators are responding with frameworks to guide this practice. Singapore has issued revised outsourcing guidelines effective from 11 December 2024, while Hong Kong is in the information-gathering stage, [the United States SEC has a current consultation on the use of outsourced service providers] and Japan is proposing a model to manage outsourced compliance services. While outsourcing compliance can offer significant benefits, it is crucial to choose partners wisely. 

Ultimately, navigating tightening regulatory scrutiny across Asia-Pacific requires an approach that balances the need to support family offices and smaller EAMs while ensuring sufficiently comprehensive adherence to evolving compliance standards. 

Working with appropriate partners who have the right experience and know-how is crucial for navigating the complex regulatory landscape and achieving sustained success in Asia’s booming wealth management sector. By adopting a proactive and strategic approach to compliance, family offices and EAMs can not only avoid regulatory pitfalls but also leverage compliance as a competitive advantage in the dynamic Asian market.