Part of a comprehensive analysis of the Financial Services and Markets Act 2022
All Parts in This Series
- PART 1
- PART 2
- PART 3 (this article)
- PART 4
- PART 4
- PART 5
- PART 6
- PART 7
- PART 8
- PART 9
- PART 10
- PART 11
- PART 12
- PART 13
- Part 7
- PART 14
- Part 1
- Part 2
- Part 3
- Part 1
- Part 3
Prohibition Orders under the Financial Services and Markets Act 2022: Key Provisions and Their Purpose
The Financial Services and Markets Act 2022 (FSMA 2022) establishes a robust regulatory framework to ensure that only fit and proper persons are involved in carrying out regulated activities within financial institutions. Central to this framework are the provisions relating to prohibition orders, which empower the Authority to restrict individuals deemed unfit from performing certain functions. This article analyses the key provisions of the FSMA 2022 relating to prohibition orders, their definitions, penalties for non-compliance, and relevant cross-references to other legislation.
Section 7: Authority to Issue Prohibition Orders
"The Authority may, by written notice, make a prohibition order against any person, if the Authority is satisfied that the person is not a fit and proper person... to carry out any one or more of the acts mentioned in subsection (2)(a), (b), (c), (d) or (e)." — Section 7, Financial Services and Markets Act 2022
Verify Section 7 in source document →
Section 7 grants the Authority the power to issue prohibition orders against individuals who are deemed unfit and improper to perform specified regulated activities. The rationale behind this provision is to protect the integrity of the financial sector by preventing unsuitable persons from holding positions that could jeopardize the soundness and trustworthiness of financial institutions. This preventive measure is essential to safeguard investors, customers, and the public interest.
Section 8: Compliance and Prohibition on Employment
"A person against whom a prohibition order is made must comply with the prohibition order." — Section 8(1), Financial Services and Markets Act 2022
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"A financial institution must not employ or use the services of a person against whom a prohibition order is made." — Section 8(2), Financial Services and Markets Act 2022
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Section 8 imposes a mandatory obligation on the prohibited person to comply with the order and prohibits financial institutions from employing or engaging such persons. This dual obligation ensures that the prohibition order is effective in practice and that financial institutions do not circumvent the Authority’s directive. The provision also includes penalties for contraventions, reinforcing the seriousness of compliance.
Section 9: Variation or Revocation of Prohibition Orders
"The Authority may vary or revoke a prohibition order... if the Authority is satisfied that it is appropriate to do so because of a change in any of the circumstances..." — Section 9, Financial Services and Markets Act 2022
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Section 9 provides flexibility by allowing the Authority to vary or revoke prohibition orders when circumstances change. This ensures that prohibition orders remain fair and proportionate, reflecting current facts and conditions. It prevents indefinite or unjust restrictions on individuals who may have remedied the issues that led to the original order.
Section 11: Publication of Prohibition Orders
"The Authority must publish the making of a prohibition order... and may publish such other information... as the Authority may consider necessary or expedient to publish in the interest of the public or a section of the public or for the protection of investors." — Section 11, Financial Services and Markets Act 2022
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Transparency is a key principle in financial regulation. Section 11 mandates the Authority to publish prohibition orders to inform the public and stakeholders, thereby enhancing market discipline and investor protection. Publication serves as a deterrent to misconduct and promotes confidence in the regulatory system.
Section 13: Appeal Mechanism to the Minister
"Where an appeal is made to the Minister under this Part, the Minister may confirm, vary or reverse the decision of the Authority on appeal... and the decision of the Minister is final." — Section 13, Financial Services and Markets Act 2022
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Section 13 establishes an appeal process, allowing affected persons to seek review of prohibition orders by the Minister. This provision ensures procedural fairness and accountability in the exercise of the Authority’s powers. The finality of the Minister’s decision underscores the importance of an authoritative resolution to disputes in this regulatory context.
Definitions Critical to Understanding the Prohibition Regime
Section 6 of the FSMA 2022 provides detailed definitions essential for interpreting the prohibition provisions. These definitions clarify the scope and application of the Act, ensuring precision and consistency.
"In this Part, unless the context otherwise requires — 'appointee' means a person... in the employment of, or acting for, or by arrangement with, the financial institution or other person... and includes any officer... but does not include a representative;" — Section 6, Financial Services and Markets Act 2022
Verify Section 6 in source document →
"'company' means the meaning given by section 4(1) of the Companies Act 1967;" — Section 6, Financial Services and Markets Act 2022
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"'critical system' means a system, the failure of which will (a) cause significant disruption... or (b) materially and adversely impact any service..." — Section 6, Financial Services and Markets Act 2022
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"'relevant function' means any one or more of the following functions... (a) handling of funds or assets; (b) risk taking; (c) risk management and control; (d) critical system administration; (e) any other function critical to the integrity or functioning..." — Section 6, Financial Services and Markets Act 2022
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"'specified risk' means credit risk, asset risk, liquidity risk, market risk, operational risk, technology risk, market conduct risk, money laundering risk, terrorism financing risk, legal risk, reputational risk, regulatory risk, or any other risks as may be prescribed by the Authority;" — Section 6, Financial Services and Markets Act 2022
Verify Section 6 in source document →
These definitions exist to delineate the roles, responsibilities, and risks associated with persons and systems within financial institutions. For example, defining "relevant function" ensures that prohibition orders target individuals whose roles are critical to financial integrity. Similarly, specifying "specified risk" helps the Authority identify areas where misconduct or incompetence could have severe consequences.
Penalties for Non-Compliance with Prohibition Orders
The FSMA 2022 imposes stringent penalties to enforce compliance with prohibition orders and related provisions, reflecting the serious nature of breaches.
"A person who contravenes subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $150,000 or to imprisonment for a term not exceeding 2 years or to both." — Section 8(3), Financial Services and Markets Act 2022
Verify Section 8 in source document →
"A financial institution that contravenes subsection (2) shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $100,000." — Section 8(4), Financial Services and Markets Act 2022
Verify Section 8 in source document →
"A person who contravenes subsection (6) or (7) shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $150,000 and, in the case of a continuing offence, to a further fine not exceeding $15,000 for every day or part of a day during which the offence continues after conviction." — Section 8(8), Financial Services and Markets Act 2022
Verify Section 8 in source document →
"A person who contravenes subsection (5) shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $50,000." — Section 14(7), Financial Services and Markets Act 2022
Verify Section 14 in source document →
The existence of these penalties serves as a deterrent against non-compliance and underscores the Authority’s commitment to maintaining high standards of conduct within the financial sector. The possibility of imprisonment and substantial fines signals the gravity of offences related to prohibition orders.
Cross-References to Other Legislation
The FSMA 2022 integrates with other statutes to ensure coherence and clarity in the regulatory landscape. Key cross-references include:
- Companies Act 1967: Definitions of "company," "share," "treasury share," and "voting share" are adopted from section 4(1) to maintain consistency in corporate terminology.
- Payment Services Act 2019: Definitions of "digital payment token" and "digital payment token instrument" from section 2(1) are incorporated to address emerging digital financial products.
- Financial Advisers Act 2001 and Securities and Futures Act 2001: Definitions of "representative" are sourced from these Acts to align regulatory treatment of financial intermediaries.
- Limited Liability Partnerships Act 2005: Definitions of "partner" and "manager" are referenced to clarify roles within partnership structures.
- Securities and Futures Act 2001: Section 4 applies with necessary modifications for determining interests in voting shares, ensuring regulatory consistency.
- Evidence Act 1893: Section 128A is referenced regarding privileged communication, protecting sensitive information during investigations.
- Penal Code 1871: Members of the Appeal Advisory Committee are deemed public servants, emphasizing their official capacity and accountability.
"'company' has the meaning given by section 4(1) of the Companies Act 1967;"; "'digital payment token' has the meaning given by section 2(1) of the Payment Services Act 2019;"; "'representative'... has the meaning given by section 2(1) of the Financial Advisers Act 2001... or the Securities and Futures Act 2001;"; "'partner' and 'manager'... have the meanings given by section 2(1) of the Limited Liability Partnerships Act 2005."; "Section 4 of the Securities and Futures Act 2001, with the necessary modifications, applies..."; "section 128A of the Evidence Act 1893"; "Penal Code 1871" — Sections 6, 7(9), 7(10), 14(4), 14(6), Financial Services and Markets Act 2022
Verify Section 4 in source document →
These cross-references exist to avoid duplication and conflict between statutes, promoting a harmonized regulatory environment. They also facilitate the application of established legal principles to new regulatory contexts.
Conclusion
The prohibition order regime under the Financial Services and Markets Act 2022 is a critical mechanism for maintaining the integrity and stability of Singapore’s financial sector. By empowering the Authority to restrict unfit persons, mandating compliance, providing for appeals, and enforcing penalties, the Act ensures that financial institutions operate with trustworthy personnel. The detailed definitions and cross-references to other legislation provide clarity and coherence, enabling effective regulation in a complex and evolving financial landscape.
Sections Covered in This Analysis
- Section 6 – Definitions
- Section 7 – Power to Make Prohibition Orders
- Section 8 – Compliance with Prohibition Orders and Penalties
- Section 9 – Variation or Revocation of Prohibition Orders
- Section 11 – Publication of Prohibition Orders
- Section 13 – Appeals to the Minister
- Section 14 – Additional Penalties and Provisions
Source Documents
For the authoritative text, consult SSO.