CMFAS FMRP – Financial Markets Regulatory Practices Exam

Correct: A Full Bank license is the only category that allows a financial institution to provide the entire range of banking business, including Singapore Dollar retail banking services to the general public. While foreign Full Banks are generally restricted to a single branch, those designated as Qualifying Full Banks (QFBs) are permitted additional locations and ATMs.

Incorrect: Wholesale Banks are specifically restricted from conducting Singapore Dollar retail banking activities, focusing instead on institutional and corporate clients. Merchant Banks operate under the Monetary Authority of Singapore Act and primarily engage in corporate finance, underwriting, and investment management rather than traditional retail deposit-taking. Offshore Banks are subject to more stringent restrictions on dealings with Singapore residents than Wholesale Banks and are not authorized for retail operations.

Takeaway: The MAS utilizes a tiered banking license framework where the ability to conduct Singapore Dollar retail banking is strictly reserved for institutions holding Full Bank status.

Correct: The representative being subject to a judgment debt that has not been fully satisfied is the right answer because under the MAS Guidelines on Fit and Proper Criteria, financial soundness is specifically assessed based on a person’s ability to fulfill financial obligations. An unsatisfied judgment debt, whether in whole or in part, is an explicit trigger for being deemed unsuitable under the financial soundness pillar.

Incorrect: The situation regarding dismissal for failing to follow internal compliance procedures is wrong because this relates to the assessment of ‘Honesty, Integrity, and Reputation’ rather than financial soundness. The situation where a representative lacks the minimum years of relevant experience is wrong because this falls under the ‘Competence and Capability’ criterion. The failure to inform the principal about a change in residential address is wrong because while it is a breach of the notification requirements under the Securities and Futures (Licensing and Conduct of Business) Regulations, it does not constitute a failure of the ‘Financial Soundness’ assessment.

Takeaway: The MAS Fit and Proper Guidelines evaluate representatives based on three distinct pillars: Honesty, Integrity, and Reputation; Competence and Capability; and Financial Soundness, each with specific criteria for assessment.

Correct: Facilitating the trading of existing securities and derivatives to allow participants to manage risk, hedge positions, or seek profits is the defining characteristic of a secondary market. While primary markets are used for the initial issuance of securities to raise capital, secondary markets provide the liquidity necessary for investors and financial institutions to trade those instruments afterward.

Incorrect: The description of a platform for the origination and issuance of new securities refers to the primary market, not the secondary market. The option regarding a specialized environment restricted to money market instruments with short maturities describes a specific type of market (the money market) rather than the general function of secondary markets. The suggestion that transactions should be executed based on personal relationships is incorrect because efficient financial markets must operate on a fair and objective “best deal” basis to ensure transparency and integrity.

Takeaway: Financial markets are divided into primary markets for capital raising and secondary markets for the trading of existing instruments, the latter requiring liquidity and objective dealing to function effectively.

Correct: Trading for the firm’s own account with the sole intent of profiting from the price movement expected to be caused by a client’s large order is a violation of the FX Global Code. This practice, often referred to as front-running or trading ahead, involves the misuse of confidential information for the participant’s own gain rather than for legitimate risk management or the client’s benefit, which contradicts the principles of ethics, fairness, and transparency.

Incorrect: Executing small parcels of the currency pair prior to the fixing window is a legitimate pre-hedging strategy aimed at minimizing market impact and achieving a better outcome for the client. Filling the client’s order using the firm’s own inventory is a standard and acceptable practice when the participant is acting in a principal capacity. Deciding not to hedge the full amount to prevent excessive volatility is a professional judgment call intended to protect the client from adverse price movements caused by their own large order.

Takeaway: Market Participants must handle client orders fairly and use confidential information only for the purpose for which it was provided, ensuring that any pre-hedging or principal activity is conducted to benefit the client or manage risk rather than to exploit the client’s market impact.

Correct: The practice is acceptable because mark-up can reflect factors such as the volume of business and the broader client relationship. According to the principles governing execution and mark-up, Market Participants may consider various factors when determining a fair and reasonable mark-up, including the costs incurred, the risks taken, the services provided, and the overall magnitude of the client’s business relationship with the firm.

Incorrect: The assertion that all clients with the same credit risk must be charged identical mark-up rates is incorrect because it fails to account for other valid commercial considerations like transaction volume or the complexity of the services provided. The claim that a written waiver is required from the client for different pricing is wrong as the regulatory focus is on the fairness of the pricing and transparency rather than obtaining specific waivers for price variations. The suggestion that this practice constitutes market misconduct by discriminating against smaller firms is incorrect because the price differentiation is based on a legitimate commercial factor (volume of business) rather than an attempt to exploit the client’s lack of sophistication.

Takeaway: While mark-ups must be fair and reasonable, they can vary between clients based on legitimate factors such as transaction volume, credit risk, and the broader client relationship.

Correct: The Blue Book applies to Foreign Exchange as well as other asset classes and financial benchmarks, while the FX Global Code is specifically dedicated to the Foreign Exchange market. This is the correct distinction because the Singapore Foreign Exchange Market Committee (SFEMC) has designed the Blue Book to cover a wider range of wholesale market activities, including various asset classes and the setting of financial benchmarks, whereas the FX Global Code focuses exclusively on promoting integrity and effective functioning within the foreign exchange market.

Incorrect: The claim that the FX Global Code is a legally binding regulation under the Securities and Futures Act is wrong because it is a set of voluntary global principles for good practice, not a statute. The statement that the Blue Book has been superseded by the FX Global Code is wrong because the SFEMC explicitly states that the Blue Book applies in parallel with the FX Global Code. The suggestion that Banks and Merchant Banks are exempt from the Blue Book is wrong because the guide is intended for all market participants in the wholesale financial markets, regardless of their specific licensing status.

Takeaway: In the Singapore wholesale financial markets, the Blue Book and the FX Global Code function as complementary sets of best practices, with the Blue Book providing a broader scope across multiple asset classes.

Correct: The use of interpolation or extrapolation techniques from related tenors based on actual arms-length transactions is classified as the 1st Level of the hierarchy of evidence. Additionally, documentation specifying the factors relied upon for a submission must be retained for at least 5 years from the date of the contribution.

Incorrect: The claim that quotes received from Inter-Dealer Brokers (IDBs) are the primary or 1st Level source of evidence is incorrect because these are classified as the 3rd Level of the hierarchy. The suggestion that documentation only needs to be kept for three years is incorrect as the standard requirement is a minimum of 5 years. The statement that quotes given by the submitter to other participants are 3rd Level evidence is incorrect because such quotes are categorized as the 2nd Level of the hierarchy.

Takeaway: For benchmarks with limited liquidity, submitters must prioritize actual transactions and related-tenor interpolation (Level 1) over quotes (Levels 2 and 3), while maintaining audit trails for at least five years.

Correct: The Financial Markets Regulatory Practices (FMRP) and the Blue Book state that while recorded communication is strongly recommended for traceability and dispute resolution, Market Participants may allow the use of unrecorded lines under exceptional circumstances, such as emergencies or for business continuity purposes, provided they provide clear guidance to personnel regarding their permitted use.

Incorrect: The statement that unrecorded lines are strictly prohibited in all circumstances is incorrect because the guidelines explicitly provide for exceptions during emergencies or BCP events. The suggestion that personnel should use personal mobile phones to ensure speed is wrong because the FMRP advises restricting mobile phone use in dealing rooms to prevent the circumvention of recording requirements. The claim that records should be deleted after 30 days is incorrect because the general retention requirement for communication records is at least two months, and information security policies must prevent recordings from being edited or deleted.

Takeaway: Market Participants must prioritize recorded communication channels but are permitted to use unrecorded lines in exceptional circumstances if they provide personnel with specific guidance on their use.

Correct: The practice of charging a higher mark-up based solely on a client’s lack of sophistication is not fair and reasonable. According to the FMRP and the FX Global Code (Principle 14), while mark-up can reflect various factors such as risks taken, costs incurred, and the broader client relationship, it should not be used to discriminate against clients simply because they are less experienced or less likely to challenge the pricing.

Incorrect: The suggestion that banks can maximize profit based on negotiation capacity is wrong because regulatory standards for fair dealing require that mark-ups remain reasonable and not exploitative. The claim that a general disclosure justifies discriminatory pricing is incorrect because disclosure of the existence of a mark-up does not waive the requirement for the mark-up itself to be fair. The idea that this is only prohibited for retail clients is incorrect; the FMRP guidelines on fair and reasonable mark-up apply to dealings with all market participants, including corporates, to maintain market integrity.

Takeaway: Financial institutions must ensure that mark-ups are fair and reasonable, avoiding price discrimination that is based solely on a client’s lack of market sophistication.

Correct: The recommended practice for handling a trade discrepancy that results in an open risk is to immediately close out the position in the market without any inference that either party is wrong. This action is a prudent measure to mitigate further losses while the parties work toward a final resolution of the dispute.

Incorrect: The suggestion that a party must wait for formal response because a lack of response constitutes acknowledgement is wrong; the FMRP explicitly states that a lack of response should not be construed as an acknowledgement. The idea that a trade must be unilaterally cancelled is incorrect because trades should generally stand to maintain market integrity, and cancellations typically require the agreement of both parties. The claim that a dispute must be referred to the SFEMC before any positions can be closed is wrong because market participants are expected to exhaust their own efforts to resolve the matter first, and risk mitigation (closing the position) should not be delayed pending arbitration.

Takeaway: When trade discrepancies create open market risk, the priority is to neutralize the risk immediately without prejudice, while ensuring that subsequent actions to limit losses are not interpreted as an admission of liability.

Correct: The statement that the merchant bank is exempt from holding a CMS license but must appoint its staff as Representatives and adhere to both the Blue Book and the FX Global Code is correct. Under the Securities and Futures Act (SFA), banks and merchant banks are considered exempt entities and do not need a separate Capital Markets Services (CMS) license to carry out regulated activities. However, they must still comply with business conduct requirements, and the individuals performing these activities must be formally appointed as Representatives. Furthermore, in the wholesale financial markets, the Blue Book and the FX Global Code apply in parallel to ensure high standards of conduct.

Incorrect: The claim that a merchant bank must obtain a separate CMS license is incorrect because the SFA specifically allows banks and merchant banks to conduct these regulated activities without a separate license. The suggestion that the Blue Book is only mandatory for CMS license holders is wrong because it applies to all market participants in the wholesale financial markets, including exempt banks. The assertion that the FX Global Code has superseded the Blue Book is false; the Blue Book remains active and covers a broader range of asset classes and benchmarks than the FX Global Code, which is specific to foreign exchange.

Takeaway: While banks and merchant banks are exempt from CMS licensing, they must still appoint Representatives and comply with both statutory conduct rules and industry codes like the Blue Book and FX Global Code.

Correct: The Market Participant should exercise a higher degree of care during the negotiation of terms and aim to finalize the documentation as soon as possible is the right answer because the FMRP guidelines specify that in the absence of standard industry terms, participants must be more diligent in their negotiations and strive to finalize documentation promptly to mitigate legal and enforceability risks.

Incorrect: Proceeding with a verbal agreement and only finalizing written terms if a dispute arises is wrong because it fails to proactively manage legal risk and ignores the requirement to have written legal agreements in place. Relying on the counterparty’s legal counsel to vet the transaction for both parties is wrong because market practice dictates that each participant should obtain their own independent legal, tax, and accounting advice to ensure their specific interests and obligations are understood. Postponing the transaction until a standard industry template is developed by a regulatory body is wrong because the guidelines expect participants to have their own internal processes to manage legal risks for bespoke or non-standard transactions rather than waiting for external templates.

Takeaway: When standard industry terms are unavailable, Market Participants must mitigate legal risk through enhanced negotiation diligence and the prompt finalization of written agreements.

Correct: Conducting Enhanced Due Diligence (EDD) is the correct action because an unusual or excessively complex ownership structure is a specific indicator of a high-risk customer. Under Singapore’s regulatory framework for countering money laundering, financial institutions must apply intensified measures, such as EDD, when the risk profile of a customer is elevated due to their corporate structure or business nature.

Incorrect: Performing Simplified Customer Due Diligence is wrong because simplified measures are only permitted for low-risk scenarios, and a complex ownership structure explicitly precludes this. Relying solely on a third-party intermediary without obtaining the underlying information immediately is wrong because the representative retains ultimate responsibility for compliance and must have immediate access to CDD data. Filing a Suspicious Transaction Report (STR) as the very first step is premature; while an STR may be necessary if the client remains evasive or if suspicion is confirmed, the immediate regulatory requirement upon identifying a high-risk profile is to initiate EDD to better understand the customer and their source of wealth.

Takeaway: Financial institutions must adopt a risk-based approach, where high-risk indicators like complex ownership structures or unusual geographic distances necessitate the performance of Enhanced Due Diligence (EDD).

Correct: Exchanging general market information, such as anticipated market direction and target prices, is the right answer because the Blue Book guidelines for benchmark submissions explicitly state that the provision or exchange of general market information between desks is not prohibited. This includes size/volumes of the market, anticipated direction, and general discussions that do not involve expressing an opinion on desired benchmark prices.

Incorrect: Disclosing specific intended contribution rates to a client is wrong because confidentiality rules dictate that information on contributions must not be sent to any party who is not involved in or responsible for the benchmark contribution process, except for regulators. Retaining documentation for only three years is wrong because the regulatory expectation for record retention of market data and submissions relied upon for benchmark determination is at least 5 years. Allowing an intern to submit rates independently is wrong because staff responsible for submissions must have appropriate experience and seniority, and there must be adequate supervision, including documented dual controls where a separate staff member performs the ‘checker’ responsibility.

Takeaway: While specific benchmark submission data is strictly confidential and subject to dual-control supervision, market participants are permitted to share general market information such as volumes and anticipated market directions.

Correct: Ensuring transaction details are promptly reported to the institution via approved communication channels is the right answer because FMRP standards require that any trades conducted away from the standard dealing environment (off-premises) must be captured and integrated into the firm’s risk management and recording systems as soon as possible. This ensures that the middle and back offices can perform their verification and settlement functions without delay, maintaining the integrity of the firm’s risk oversight.

Incorrect: Waiting until returning to the office the following business day is wrong because delays in reporting create a gap in risk monitoring and increase the potential for errors or unauthorized trading to go undetected. Reporting only to the counterparty’s compliance department is wrong because the primary regulatory obligation is for the Market Participant to ensure their own internal records and controls are updated. Recording the trade in a personal logbook for month-end disclosure is wrong because personal records are not official firm systems, and monthly reporting is far too infrequent to satisfy the requirement for prompt trade capture and risk management.

Takeaway: To mitigate operational and conduct risks, all off-premises trades must be reported immediately through authorized firm channels to ensure they are subject to standard independent verification and control processes.

Correct: The dealer’s actions constitute an offense because the dissemination of information regarding illegal market transactions is prohibited under the Securities and Futures Act (SFA). Even if the intent is to warn clients, sharing such information can cause those clients to enter the market to protect themselves or profit, which exacerbates the artificial market conditions and assists the manipulators in achieving their desired price impact.

Incorrect: The argument that the dealer is simply fulfilling a fiduciary duty to protect clients is incorrect because regulatory requirements to maintain market integrity and prevent the spread of information about illegal acts override individual client interests. The claim that liability only applies to those directly involved in the manipulation is wrong; the law specifically prohibits the indirect or direct circulation of information about such acts by any party. Describing this as ‘Points Parking’ is a conceptual error, as points parking involves executing artificial transactions to hide positions or transfer profits and losses, rather than sharing information about third-party illegal activities.

Takeaway: Market participants are strictly prohibited from disseminating information about illegal market activities, as such communication can amplify the effects of market manipulation and further distort price discovery.

Correct: Identifying the action as an unethical practice is correct because the FMRP guidelines explicitly state that Market Participants should not place partial or minimal orders with Inter-Dealer Brokers (IDBs) with the specific intention of identifying the counterparty to bypass the broker and conclude the transaction directly.

Incorrect: Describing the action as a “legitimate execution strategy” is wrong because the FMRP specifically prohibits using IDBs for the sole purpose of name discovery to circumvent brokerage roles. The suggestion that it is an “acceptable market practice” or “name switching” is incorrect as it mischaracterizes a prohibited ethical breach as a standard procedure. The idea that paying a “finder’s fee” validates the action is incorrect because the ethical violation lies in the deceptive intent and the method of identifying the counterparty, which is not rectified by subsequent payments.

Takeaway: Market Participants must maintain the integrity of the brokerage process and respect confidentiality by not using IDBs as a tool for name discovery to facilitate direct dealing.

Correct: Wholesale Banks are the most appropriate choice because they are permitted to provide a broad range of banking services similar to Full Banks, but they are specifically restricted from engaging in Singapore Dollar retail banking activities.

Incorrect: Full Banks are not the best fit because they are authorized to provide the entire range of banking business, including retail banking, which the institution specifically wishes to avoid. Merchant Banks are incorrect because they are approved under the Monetary Authority of Singapore Act and typically focus on specialized activities such as corporate finance, underwriting, and mergers and acquisitions rather than a general banking service suite. Offshore Banks are incorrect because they face more significant restrictions on their dealings with Singapore residents compared to Wholesale Banks, making them less suitable for an institution seeking to maximize its non-retail service range.

Takeaway: The MAS issues different banking licenses to segment the market, where Wholesale Banks cater to institutions that provide a wide range of services but exclude Singapore Dollar retail banking.

Correct: The trader’s actions constitute the dissemination of information about illegal transactions. Under the Securities and Futures Act (SFA), it is an offense to circulate or disseminate information suggesting that market prices will rise or fall due to illegal transactions (like wash trades). This is prohibited because such information can lead other market participants to enter the market, which either assists the manipulators or further exacerbates the artificial market conditions created by the original illegal activity.

Incorrect: The claim that the trader is fulfilling a fiduciary duty is incorrect because a representative’s duty to their clients does not permit them to violate market misconduct regulations or contribute to market distortion. The assertion that liability only exists for direct participants in the wash trades is wrong; the law specifically targets the dissemination of information by third parties to protect market integrity. Describing the scenario as ‘Points Parking’ is incorrect because points parking refers to the practice of using artificial trades to hide positions or transfer profits and losses between accounts, which is not what occurred in this scenario.

Takeaway: Market participants must refrain from spreading information about suspected or known illegal transactions, as doing so can amplify artificial market movements and lead to criminal liability under the SFA.

Correct: The timeline for a buy-in due to a delivery failure in the Singapore Government Securities (SGS) market is strictly defined. If the short seller fails to deliver the securities by 1600h on the business day following the original value date (T+1), a buy-in notice is delivered at 0915h on the second business day following the original value date (T+2), and the Monetary Authority of Singapore (MAS) proceeds to buy the securities at 1015h on that same day (T+2).

Incorrect: The suggestion that the notice is delivered at 1600h on the value date is incorrect because the rules allow the seller until 1600h on the following business day (T+1) to resolve the fail before the buy-in process is triggered on T+2. The claim that the notice is issued on T+1 with execution on T+2 is incorrect because the formal buy-in notice is only delivered on the morning of T+2. The option proposing execution on T+3 is incorrect as the MAS intervention occurs earlier, specifically on the second business day (T+2), to maintain market integrity.

Takeaway: Short positions are not permitted in the SGS market; failures to deliver are addressed through a mandatory buy-in process where the MAS acts as the agent on the second business day after the failed settlement date.

Correct: Treating the request as an exception that requires express senior management approval from both the Market Participant and the customer, while booking unrealised losses as a credit extension, is the correct procedure. According to FMRP guidelines, off-market rates are strongly discouraged as they can be used to conceal losses or facilitate fraud. Therefore, they must remain exceptional, involve high-level authorization, and be properly reflected in credit exposure and systems.

Incorrect: The suggestion that this is a standard market practice to maintain confidentiality is wrong because the FMRP guidelines explicitly state that such transactions are strongly discouraged and should not be accommodated as normal practice. The idea that senior management approval is unnecessary if the loss is within margin limits is incorrect because the guidelines mandate express senior management approval for any off-market rate transaction. The claim that off-market rates are strictly prohibited under all circumstances is incorrect because the guidelines allow for them in exceptional cases, provided specific internal policies, approvals, and credit monitoring are in place.

Takeaway: Rollovers at off-market rates are discouraged and require express senior management approval from both the firm and the client, with unrealised losses treated as credit extensions.

Correct: The hierarchy of evidence for benchmarks with limited liquidity prioritizes actual arms-length transactions and interpolation from related tenors (Level 1), followed by quotes given by the submitter to other market participants (Level 2), and finally quotes received from inter-dealer brokers (Level 3). This structured approach ensures that the benchmark submission is based on the most objective and verifiable data available before moving to less direct indicators of market value.

Incorrect: The suggestion to prioritize quotes from inter-dealer brokers over actual transactions is incorrect because inter-dealer broker quotes are classified as Level 3 evidence, which should only be used if Level 1 and Level 2 data are insufficient. The claim that expert judgment should always be the primary source is wrong because the guidelines emphasize using observable transactions first, with expert judgment serving as a supplement or alternative only when data is limited. The option suggesting that only transactions from the previous five days should be used while ignoring quotes is incorrect because the framework specifically allows for the use of quotes and interpolation to ensure a submission can be made even when direct transaction volume is low.

Takeaway: In environments with limited liquidity, benchmark submitters must adhere to a three-level hierarchy of evidence that prioritizes actual transactions and interpolation over quotes given or received to maintain the integrity of the benchmark.

Correct: Classifying a corporate treasury department as a buy-side entity is correct because, under the Singapore wholesale financial market framework, buy-side entities include asset managers, sovereign wealth funds, hedge funds, and corporate treasury departments that manage their own institutional risks and liquidity.

Incorrect: The classification as a sell-side entity is incorrect because sell-side entities are typically banks, merchant banks, and other financial institutions that provide liquidity and market-making services to others. The description of the treasury as an inter-dealer broker is wrong because inter-dealer brokers (IDBs) are intermediaries that facilitate transactions specifically between dealers rather than managing corporate risk. The claim that it is a non-bank liquidity provider exempt from the Blue Book is incorrect because the Blue Book (Singapore Guide to Conduct and Market Practices) applies to all Market Participants, including buy-side corporate treasuries.

Takeaway: The FMRP framework categorizes a wide range of entities, including corporate treasuries, as Market Participants to ensure that high standards of conduct and market practice are maintained across both the buy-side and sell-side of the wholesale financial markets.

Correct: Providing supervisory oversight of the benchmark rate setting process and reviewing key policies and processes for both surveyed and traded benchmarks is the right answer because the Oversight Committee is specifically responsible for the supervisory oversight and the review and challenge of key policies and processes applicable to both Surveyed and Traded Benchmarks.

Incorrect: Compiling transaction data from Inter-Dealer Brokers (IDBs) to calculate the Volume Weighted Average Price (VWAP) is wrong because this is the technical function of the Calculation Agent. Appointing participants and submitters to ensure representative market participation is incorrect as this is a core responsibility of the Benchmark Administrator. Submitting benchmark rates and providing substantiating documentation is wrong because this is the operational duty of the Submitters in a surveyed benchmark framework.

Takeaway: The Oversight Committee provides independent governance and supervisory review of the benchmark setting process to ensure integrity and transparency, distinct from the operational roles of the Administrator, Calculation Agent, and Submitters.

Correct: Pre-settlement risk is the risk that a counterparty defaults after a trade is struck but before the settlement date, leading to a loss equal to the cost of replacing the contract at current market prices. Settlement risk, however, occurs on the value date when a party has already sent its payment but the counterparty defaults before reciprocating, potentially resulting in the loss of the full notional amount.

Incorrect: The assertion that pre-settlement risk involves the loss of the full notional amount is incorrect because that describes settlement risk; pre-settlement risk is generally limited to the mark-to-market replacement cost. The claim that settlement risk occurs only before the value date is wrong because settlement risk specifically arises during the exchange of principal on the value date. The statement regarding netting agreements is incorrect because legally enforceable master netting agreements are a primary tool used to reduce settlement risk and lower capital requirements by allowing obligations to be offset.

Takeaway: Market participants must distinguish between pre-settlement risk (replacement cost) and settlement risk (principal loss) to implement appropriate credit limits and mitigation strategies like netting.

Correct: Providing a specific disclosure highlighting that the account may be subject to substantial management and advisory fees, which may require significant trading profits to prevent the depletion of assets, is the right answer because this is the specific requirement for managed accounts under Form 14 of the Securities and Futures (Licensing and Conduct of Business) Regulations. This ensures the client understands how the fee structure impacts the net performance of their investment.

Incorrect: The requirement to acknowledge that stop-loss orders may not be effective is wrong because this is a standard disclosure found in Form 13 (Risk Disclosure Statement) for leveraged FX trading, rather than the additional disclosure required specifically for the managed account aspect. The requirement to state that the firm is acting as a principal is wrong because this is a general requirement for principal dealings under Regulation 47B and is not the specific disclosure content of Form 14. The statement regarding the commingling of funds in a trust account is wrong because while it describes a permissible practice for handling customer money, it is not a disclosure requirement mandated by the managed account regulations.

Takeaway: When dealing with managed accounts, Market Participants must provide Form 14 to ensure customers are aware that management and advisory fees can significantly deplete account assets unless offset by substantial trading profits.

Correct: The prospective customer being a financial institution supervised by the Monetary Authority of Singapore (MAS) is a valid criterion for applying Simplified Customer Due Diligence (SCDD). This is because such entities are already subject to rigorous AML/CFT regulations and direct oversight by the MAS, which significantly lowers the risk profile of the counterparty.

Incorrect: The option regarding a private limited company in a FATF-member jurisdiction is incorrect because SCDD for corporate entities is generally reserved for companies listed on approved exchanges where reliable public information is readily available, rather than all private companies. The option concerning a high-net-worth individual with a legal reference is incorrect because individuals, particularly those with substantial assets, typically require standard or enhanced due diligence to verify their source of wealth; a professional reference does not qualify them for simplified measures. The option regarding international business newspapers is incorrect because news sources are considered unauthenticated and are only suitable for supplementary background checks, not as a primary basis for reducing due diligence requirements.

Takeaway: Simplified Customer Due Diligence (SCDD) is a risk-based measure permitted only for specific low-risk categories, such as Singapore government entities or financial institutions already under MAS supervision.

Correct: The institution must conduct Enhanced Due Diligence (EDD) and should consider filing a Suspicious Transaction Report (STR) if the client remains unwilling to provide the requested information. This is because personal asset holding vehicles and companies with nominee shareholders are explicitly identified as high-risk categories requiring EDD. Furthermore, a client’s reluctance or inability to provide information requested during the due diligence process is a specific trigger for filing an STR with the Commercial Affairs Department (CAD).

Incorrect: Applying Simplified Customer Due Diligence (SCDD) is incorrect because SCDD should never be performed if there is a suspicion of money laundering or if the customer profile fits high-risk criteria such as complex ownership structures. Waiving due diligence based on a referral is incorrect because reliance on another financial institution does not reduce the representative’s personal responsibility to fulfill regulatory obligations, and the institution must still obtain CDD information immediately. The suggestion to file an STR within 30 business days is incorrect because the regulatory requirement in Singapore is to file the STR within 15 business days once a suspicion has been identified.

Takeaway: Financial institutions must apply Enhanced Due Diligence for high-risk entities like personal asset holding vehicles and are required to file a Suspicious Transaction Report within 15 business days if a customer is unwilling to provide necessary documentation.

Correct: A step-child who is financially dependent on the Representative is the right answer because the FMRP guidelines explicitly include dependent children and step-children within the definition of ‘connected persons.’ This ensures that the Representative cannot circumvent personal dealing restrictions by trading through the accounts of those they support financially.

Incorrect: The option regarding a cousin living in a separate residence is wrong because the regulations specify that relatives must share the same household to be automatically deemed ‘connected persons.’ The option concerning a high-net-worth client is wrong because, while the Representative has a fiduciary duty to the client, the client is not considered a ‘connected person’ for the purposes of the Representative’s personal account dealing monitoring. The option about a former business partner is wrong because the connection must be current; a person with whom there is no longer a close link or material interest does not meet the criteria for a connected person under these specific conduct rules.

Takeaway: To prevent conflicts of interest and market misconduct like front-running, personal dealing restrictions apply not only to the Representative but also to ‘connected persons,’ which includes spouses, household relatives, and dependent children.

Correct: Prioritizing actual arm’s length transactions or interpolation from related tenors as the first level of evidence and retaining records for five years is the right answer because Level 1 evidence consists of directly relevant transactions or interpolation/extrapolation from related tenors. Furthermore, the regulatory requirement specifies that documentation specifying the factors relied on must be retained for at least 5 years from the date of contribution.

Incorrect: The suggestion that quotes from IDBs are the primary level of evidence is wrong because these are classified as Level 3 evidence, which is lower in the hierarchy than the submitter’s own transactions (Level 1) or quotes given (Level 2). The statement regarding the necessity of voluminous documentation is wrong because the FMRP Study Guide explicitly states that it is not considered necessary to generate voluminous documentation, provided there is a brief but adequate explanation of the factors relied upon. The claim that expert judgment exempts a submitter from documentation is wrong because even when objective data is limited, the submitter must still generate and retain documentation that specifies which factors or combination of factors were relied on in making the submission.

Takeaway: When determining benchmark submissions in illiquid markets, submitters must follow a three-level hierarchy of evidence (prioritizing actual transactions) and maintain supporting documentation for at least five years.