The number of SFOs or single family offices in Singapore has been rising since COVID-19. Due to the unprecedented uncertainty during the pandemic, the wealthy were concerned about the safety of their businesses and investments. Singapore has proven to be a business and investment haven, with a total of 1100 family offices set up in the city state by the end of 2023. However, recent developments might slow down future growth of family offices.
Scrutiny on Single Family Offices (SFOs)
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Exemption from Fund Management Licensing
Specifically set up to manage the wealth of a wealthy family, SFOs currently are not required to be registered or licensed by Singapore’s central bank, the Monetary Authority of Singapore (MAS), as they do not manage third-party funds. However, with the surge of SFOs and higher risk of money laundering, MAS is taking additional measures to strengthen its surveillance and defence.
The new MAS framework introduces a harmonised qualifying criteria that SFOs must meet to be exempted from fund management licensing requirements. SFOs have to maintain a business relationship with an MAS-regulated financial institution that will perform anti-money laundering checks on them. In addition, SFOs are subjected to a corporate beneficial ownership reporting regime.
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Tightened Measures for Tax Incentives
The now $3 billion (and counting) money laundering case that rocked Singapore in October 2023 has the government scrutinising single family offices (SFOs) at a deeper level. Not only were the SFOs used as a money laundering vehicle, it also received tax incentives from the government. To combat similar cases in future, financial regulators are reviewing its internal incentive administration processes for SFOs and will tighten them where needed. Going forward, compliance procedures will be stricter for SFOs.
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Longer Wait to be Approved
Singapore has 200 single family office applications that are pending by the end of 2023. With the aforementioned money laundering case, due diligence checks conducted at the point of application have been strengthened and take more time to process. It now might take up to 18 months for an SFO to be established.
While these added procedures may restrict the growth of SFOs in Singapore, investors worldwide can be confident of the country’s position as the top financial hub in Asia. These procedures can be seen as Singapore’s initiatives to combat financial crimes, making it a safe and secure place to invest in.
Demand for Professionals
With the rise of family offices, specific talents are in high demand such as compliance, sustainability, and investment advisory. While SFOs do not hire in large numbers, in fact they typically hire around five employees each, these professionals are in short supply in the Singaporean workforce. With the current number of SFOs, jobs need to be filled in quickly to ensure smooth operations.
Due to the highly risky and long-term investments made by SFOs, highly talented professionals who are best at their expertise are needed. Investments made by SFOs help expand the capital pool for start-ups that develop innovative solutions, ensuring funds flow into growth sectors. Thus, Singapore needs to attract top talents from around the world to fill in the talent gap for the SFOs. SFOs’ investments, led by these top talents, would propel Singapore’s businesses and financial ecosystem to great heights.
Adjustment of Tax Incentives for SFOs
The changes to tax incentives are meant to encourage SFOs to create jobs, generate demand for domestic service providers and channel capital to enterprises in Singapore, especially in growth sectors such as digitalisation, health and medical. This adjustment expands the tax perks for SFOs while at the same time, making sure SFOs do more for the local economy including creating jobs and investing in local companies. This adjustment recognises all investments in non-listed Singapore operating companies, including private credit.
Will the Number of SFOs Continue to Rise in Singapore?
The number of SFOs may slow down while the new procedures are being implemented but with Singapore’s reputation as a top financial hub, attractive tax rebates, and transparent governance, the growth of SFOs will continue to rise in the country.
