Financial & Business Services sector in Singapore

An Expert's View about Banking, Finance and Insurance in Singapore

Posted on: 30 Sep 2010

Singapore has long been a key financial centre in the Asia-Pacific region, with more than 500 local and foreign financial institutions offering a wide range of financial products and services.

Financial and Business Services ? Singapore Sector Report Financial and Business Services Singapore Produced by: Cheryl Lee, UK Trade & Investment, British High Commission, Singapore Last revised August 2009 Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation and Skills and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published August 2009 by UK Trade & Investment Crown Copyright © Financial and Business Services ? Singapore Table of Contents OVERVIEW 3 CHARACTERISTICS OF MARKET OPPORTUNITIES 6 KEY METHODS OF DOING BUSINESS 9 PUBLICATIONS 10 CONTACT LISTS 11 Page 2 of 10 Financial and Business Services ? Singapore OVERVIEW Singapore is a small island city with a total population of 4.84 million, of which Singapore residents number 3.64 million, comprising 75% ethnic Chinese, 14% Malays and 9% Indians. The remainder is made up of expatriate professional, skilled and other guest workers. It is a relatively young population with only 315,800 or 8.4% of the population currently over the age of 65. This is set to change dramatically during the period to 2030 when 800,000 or 18.7% of the population will be aged 65 years and above. The proportion of those between 15 and 45 years currently make up nearly half the population. It is a relatively affluent population, and nearly 80% of the population is categorised as middle class. GDP per capita in 2008 equated to S$53,192 (over £22,000) and Singapore remains one of the wealthiest countries in the world - this rate of GDP is comparable to that of the Scandinavian countries. Domestic savings in Singapore are equivalent to 45% of GDP, against just 13% in America and 16% in Britain. There are nearly 7,000 multi-national corporations (MNCs) in Singapore, some of which are numbered among the 700 or so British companies here. Approximately 19,000 British nationals live in Singapore. For the 4th consecutive year, the UK remained the top investor in Singapore. FDI from the UK stood at S$62.9 billion in 2007 (a 13.9% increase on 2006). CHARACTERISTICS OF MARKET Financial Services Singapore has long been a key financial centre in the Asia-Pacific region, with more than 500 local and foreign financial institutions offering a wide range of financial products and services. It is the fourth largest foreign exchange trading centre in the world, after London, New York and Tokyo, and a growing Asia-Pacific centre for wealth management, offering an array of services through the many financial institutions based here. Singapore was ranked third by the Global Financial Centres Index, behind London and New York, according to a new report published by the City of London last year. In Asia, Singapore surged past Hong Kong to move into third place overall. Singapore?s financial sector has become more significantly diversified in the recent years. While core banking and insurance-related services still make up the biggest chunk of the industry, a faster-growing ?periphery? of clusters including wealth advisory, brokerage and treasury, are emerging. These are strongly tied to conditions in global financial markets and have expanded their share of the financial sector?s total add-on value from 19% in 2000 to 22% last year. Rocketing Asian growth is also creating a number of affluent sophisticated individuals interested in more complex financial products to protect and enhance their wealth. Singapore's attractive tax regime (and in part its banking secrecy laws) have led to its recent emergence as a global booking hub for private banks whose clients want to register legal ownership of their assets in Asia. In a recent move, as a further sign of Singapore's growing international stature in financial services, StanChart has become the first international bank to make Singapore its global private banking headquarters. It has also located the global HQ for most of its businesses (including corporate finance and consumer banking) in Singapore, and has signed the biggest office rental deal in Singapore history. In July this year, the bank announced its plan to expand its Priority Banking business by hiring another 300 Relationship Managers (RM) in Singapore- more than double its current RM base. Until 1997, Singapore was considered to be a restrictive (and over-regulated) market for financial services with barriers to entry into certain key sectors like insurance and banking. A Page 3 of 10 Financial and Business Services ? Singapore long-standing feature of the Singapore financial sector had been the strict separation of onshore and offshore banking facilities. This separation rested on two pillars: limited access of foreign institutions to the domestic banking market, and restrictions on the international use of the Singapore dollar. The region?s economic problems in 1997-99 prompted a change in attitude. In November 1997, the Singapore Government announced its intention to establish Singapore as a global financial services hub. The Government commissioned a Financial Sector Review Group to undertake a strategic review of the financial sector and formulate strategies for liberalisation and development. This led the Singaporean authorities to initiate wide-ranging measures to integrate the onshore and offshore financial sectors, and enhance banking efficiency by opening up the domestic banking market. They also lifted most restrictions on the international use of the Singapore dollar, and developed equity markets in a bid to diversify Singapore?s role as a financial centre. There have been a number of common elements to many of these reforms: ? They have made it easier for financial institutions to operate in Singapore (e.g. a more responsive approach to banking supervision has been adopted, certain investment restrictions for insurance companies have been lifted). ? The Government has demonstrated a willingness to use its significant financial resources to kick-start the development of certain sectors, where it feels this would be effective. For example it encouraged a range of governmental and quasi-governmental organisations to issue bonds to help establish a liquid bond market; generous tax incentives have been offered to encourage activity in specific sectors. ? The reforms have opened up the market to competition and removed many of the barriers to entry ? In addition the MAS has adopted a more proactive approach to promoting the financial services industry in Singapore. Among other things they have opened a London office. In the area of Islamic banking, MAS announced the completion of its sukuk issuance facility early this year, to provide Shariah- compliant regulatory assets. MAS is the first central bank of a non- Muslim majority jurisdiction to come up with an ongoing local currency sukuk issuance Programme. Singapore- based banks may now also enter into Murabaha interbank placements and offer Ijara Wa Igtina financing. Professional Services Singapore hosts an extensive repertoire of international or regional headquarters of multinational top global management and human resource consultancies, market research and advertising agencies as well as legal and intellectual property management services firms. Strategically located amongst diverse Asian economies coupled with our rich talent pool, Singapore is well-placed as Asia's professional services brain trust with thought leadership, knowledge repositories, and world-class centres of excellence. Legal services In legal services, the areas of arbitration, regional law, and intellectual property have seen new developments to cater to the growing needs of the region. International law firms in the world, including Baker & McKenzie, Jones Day and Linklaters, already have a significant presence here. More foreign law firms from Europe, US and Asia are reported to be setting up offices in Singapore, 8 firms get the go-ahead in 2006 by the Attorney-General?s Chambers in 2006, the highest number since 2001. UK law firm, Berwin Leighton Paisner was one of the few who set up its first Asian office here in the beginning of the year. Page 4 of 10 Financial and Business Services ? Singapore Law firms in Singapore rank among Asia's best according to a law guide by Chambers and Partners; Chambers has been ranking leading law firms and lawyers worldwide based on interviews with lawyers and clients for almost 40 years. Amongst them British affiliated firms, Allen and Gledhill and Drew & Napier are in band four for international arbitration, Allen & Overy, DLA Piper are in band two and Herbert Smith in band one. In December last year, the Singapore government awarded Qualifying Foreign Law Practice (QFLP) licenses to six law firms, four of which were UK law firms Allen & Overy, Clifford Chance, Herbert Smith and Norton Rose. The QFLP scheme allows foreign law firms to practice in all areas of Singapore law, except domestic litigation, criminal, family and administrative law, through Singapore- qualified lawyers employed by them. Singapore is building upon its geographic advantage to become an arbitration venue of choice. The Permanent Court of Arbitration is now in Singapore and the International Chamber of Commerce- International Court of Arbitration will be setting up a regional office here. The United Nations? World Intellectual Property Organisation (Wipo) is establishing a new Arbitration and Mediation Centre here- the first such centre outside Geneva. Internationally renowned arbitrators are locating their regional practices in Singapore, with both local and international law firms reporting brisk growth in their arbitration practices. Management consultancy Singapore is home to 17 of the world?s top 20 largest consulting firms. Regional practice leaders based here offer expertise as well as develop and roll-out solutions to the region and beyond. PricewaterhouseCoopers Singapore is the regional hub for personal tax, financial risk management, project advisory and customs and excise advisory. The other three of the Big Four accounting firms - Ernst & Young, Deloitte & Touche, and KPMG; and top global management consulting giants like Accenture, AT Kearney, Bain and McKinsey, have also made Singapore their base for managing their business in the Asia Pacific. Watson Wyatt set up its Asia-Pacific research & information centre here to tap into the opportunity for developing and providing human capital management strategies for the region. Creative, marketing and advertising Singapore has worked hard to attract creative talent, with creative agencies here winning international accolades. Clio Awards 2007 count Saatchi & Saatchi Singapore and JWT Singapore among its winners. Ogilvy & Mather Singapore, third in the 'Agency of the Year' category at the 2007 Cannes Lions International Advertising Festival, houses a regional creative team and handles a number of global accounts including GlaxoSmithKline, Unilever, Kraft and American Express. For advertising and public relations, the world's four largest marketing communications global conglomerates - Omnicom, Interpublic, WPP and the Publicis Groupe, are represented in Singapore through various network agencies. Home-grown advertising agency Batey Ads has also expanded into the region with Singapore as its base. Research, analysis and niche services Millward Brown, a global market research organisation that is part of the WPP group, has set up its Asia-Pacific HQ here to house its key regional functions. Singapore is also the ideal location for international market research giant Synovate; the company located its headquarters here to better serve its regional clients in the pharmaceutical and car-making industries. They join the ranks of other market research leaders such as AC Nielsen, Taylor Nelson Sofres, and GfK, many of whom carry out regional functions from Singapore. Niche professional services firms also thrive in Singapore. Quatrro Group?s international headquarters and global analytics laboratory for its high end risk management consultancy in Page 5 of 10 Financial and Business Services ? Singapore Singapore is a strategic complement to its business process outsourcing operations in India. Global Brands Group has set up its global headquarters in Singapore. The group is the international brand management and licensing agency for world renowned brands such as Fédération Internationale de Football Association (FIFA) and Warner Bros Consumer Products. London-listed SHL Group, a world leader in occupational-assessment tests, has located its Asia- Pacific HQ in Singapore, whilst US-based Center for Creative Leadership and the Gallup Organization have both set up their first Asian campuses here to 'asianise' their curriculum and provide customised training in leadership development. OPPORTUNITIES Banking Prior to 1999, MAS, considering Singapore?s banking market to be saturated, had not issued new licenses for local retail banking for over 20 years to either foreign or domestic institutions. In May 1999, Singapore embarked on a five-year banking liberalisation programme. Liberalisation of the banking sector saw the government creating a new category under the foreign banks category, called the Qualifying Full Bank (QFB). Banks with QFB privileges may operate a total of 25 locations. They may also share ATMs among themselves, and relocate their sub-branches freely. QFB are allowed to negotiate with the local banks on a commercial basis to let their credit card holders obtain cash advances through the local bank's ATM networks. QFBs may provide debit services through an EFTPOS network, offer Supplementary Retirement Scheme and CPF Investment Scheme accounts, and accept fixed deposits under the CPF Investment Scheme and Minimum Sum Scheme. The six licences were awarded to ABN AMRO, Banque Nationale De Paris (now BNP Paribas), Citibank, Hongkong and Shanghai Banking Corporation, Malayan Banking and Standard Chartered Bank. While six foreign banks have been granted QFB licenses, they and other foreign banks continue to face problems on the use and location of branches and ATMs. Since stand-alone ATMs are considered "locations," the restriction on the number of locations effectively bars foreign banks from accessing the two main local ATM networks, a major competitive disadvantage. Customers of foreign banks and local customers of some foreign charge card issuers are unable to access their accounts for cash withdrawals, transfers or bill payments at ATMs operated by banks other than their own, because such actions are considered by MAS to be tantamount to providing retail banking services. Until recently, MAS officials had stated that they wanted local banks? share of total residents deposits to remain above 50 percent. However, since the introduction of foreign competition with QFB license, the big three local banks, DBS, OCBC and UOB have seen an erosion in their market share. As of July 2007 according to Moody?s Investors Service, the foreign banks had 30 percent of the market share in loans and deposits, the Big Three Local banks have lost about an aggregate of 5 percentage over the last five years. The 40 percent shareholding limit on foreign ownership of domestic banks was removed and the Minimum Cash Balance (MCB) was lowered from 6 percent to 3 percent. The limit on offshore banks? S$ loans to Singapore residents was raised from $200 million to $500 million. MAS previously indicated that they were not inclined to approve any foreign takeover of a local bank. Recent discussions with MAS officials, however, suggest that they are likely to be more relaxed in the future about foreign banks share of the market. MAS completed the major part of the second phase of the banking liberalisation programme by May 2003. That included the award of 20 Wholesale Bank licences to foreign banks over two years, which has now been done. In addition, all Offshore Banks would be upgraded progressively to WB status over time. MAS will review and assess developments in the banking Page 6 of 10 Financial and Business Services ? Singapore industry in deciding on the timing for upgrading the remaining Offshore Banks to WB status. In December 2002, the Government removed the 20 percent aggregate foreign shareholding limit on finance companies. Internet Banking has been conferred as a preferred method of transaction for the customers of banks in Singapore. Online banking customer base has been growing for banks such as DBS, Citibank, OCBC, Maybank, UOB, and HSBC, with some reporting that as much as 50% their customers are banking via the Internet. The value of online banking transactions has also risen significantly. Banks here expect Internet Banking to grow further as customers become more IT-savvy and realise the convenience of transacting through the bank anytime, anywhere. MAS has updated the Internet Banking and Technology Risk Management (IBTRM) Guidelines following consultation with the industry. The Guidelines aims to assist banks in: ? Establishing a sound and robust technology risk management framework; ? Strengthening system security, reliability, availability and recoverability; and ? Deploying strong cryptography and authentication mechanisms to protect customer data and transactions The IBTRM Guidelines is available on the MAS website: . In the area of Islamic banking, MAS has also issued two regulations clarifying that Singapore- based banks may enter into Diminishing Musharaka financing and Spot Murabaha transactions. In addition, MAS has ensured equal tax, regulatory and liquidity treatment of the Singapore dollar sukuk with Singapore Government Securities. Taken together, these changes will allow banks to conduct a wide range of Islamic financing activities, and to have greater flexibility in structuring instruments to meet their risk management needs. Insurance In March 2000, MAS lifted a ban on new entrants to the local direct insurance market and removed the 49 percent restriction on foreign ownership of local insurers. There is no fixed limit on the number of new entrants. However, MAS has said that the admission of new entrants will be gradual, asserting that a rush of new entrants might result in the adoption of ?unsound, short-term market practices?. MAS hoped that the liberalisation will be a sufficient catalyst to prompt consolidation. It encourages local insurers to merge or form strategic alliances with other financial industry players, in order to flourish in a liberalised environment. Consolidation will lead to greater economies of scale, facilitate IT investments, acquisitions and strategic alliances, and help attract talent to the industry. The relaxation on foreign ownership was accompanied by other liberalising measures. These included reducing the paid-up capital requirement for captive insurers from $1 million to $400,000 and extending the ten-year tax exemption for Singapore-registered insurers in respect of income from offshore marine hull and liability business. Singapore will also allow reinsurance companies with only a short track record, or even newly established ones to base here, if they are well-capitalised with an accepted rating and are managed by experienced professionals. Singapore will be developing its insurance industry by focusing on specialised products, attracting new capital and strengthening its position as a hub for captive insurers. As companies globalise and have to manage more risk, Singapore will be able to play a bigger role in areas such as marine and aviation insurance, trade, credit insurance, energy, director?s and officer?s liability, professional indemnity, life insurance and Islamic insurance. In June 2007, MAS set out the proposed regulatory framework for insurance securitisation. Through securitisation, insurers can transfer insurance risk directly to the capital market. Recognising the merits of such risk mitigation techniques, especially for managing risks arising from pandemics and natural catastrophes, and the potential demand for insurance linked securities (ILS) in Asia, MAS is Page 7 of 10 Financial and Business Services ? Singapore developing a regulatory framework for insurance securitisation. MAS proposes to allow registered insurers to participate in insurance securitisation as investors of ILS, and to report to MAS information like their aggregate exposure to ILS. Securities Markets/Fund Management Singapore?s first stock exchange, the Stock Exchange of Singapore (SES), was established in 1973. SES expanded rapidly to become an important regional stock market. Today, the securities industry in Singapore is being developed with the aim of making Singapore an attractive capital-raising centre in Asia while at the same time providing investors with a wide range of investment options. An important first step in this was the inauguration of the Singapore Exchange (SGX) in December 1999, following the demutualisation and merger of the Stock Exchange of Singapore (SES) and the Singapore International Monetary Exchange (Simex). This move was aimed at reducing the potential conflict of interest between members, who were also owners, and other users of the exchanges. Under the new SGX, three important reforms were implemented. First, the SGX eased conditions for foreign companies to list in S$ on the SGX. Second, access to trading on the SGX was fully opened from January 2002, while commissions for trades were fully liberalised in 2003. Third, MAS raised the foreign ownership limit in domestic securities firms to 100 percent, and allowed those stockbrokers to expand into other securities-related areas such as fund management. As of January 2002, all trading restrictions formerly placed on foreign-owned stockbrokers were removed. However, aggregate investment by foreigners may not exceed 70 percent of the paid-up capital of dealers that are members of the SGX. New legislation, which took effect in October 2002, allows for the direct registration of foreign funds, provided the prospectus is from an entity registered as a foreign company in Singapore and the fund is approved by the MAS. These reforms are in line with Singapore?s aspiration to become a regional fund management centre. To promote Singapore in this role, the Government of Singapore Investment 1 Corporation (GIC) has delegated more of its large financial portfolio to international fund managers, and tax and regulatory incentives have been implemented to attract fund managers. In 2000, the Government committed itself to assigning $25 billion of GIC funds to management by external fund managers. In 2003, MAS published proposals that would enable market professionals working outside Singapore to obtain a temporary license, so allowing financial advisory and securities firms to bring specialists and experts into Singapore on a short-term basis. In view of these reforms, Singapore's stock market is becoming the leading regional bourse for foreign investors, with net inflows of foreign investment funds quadrupling to S$1.7 billion in the first 5 months of 2007. This increase signals a strategy switch by foreign investors, which have been pulling money out of China and Hong Kong in favour of a safer haven. Singapore is also stepping up efforts to nurture the risk management and ship finance sectors so that they can complement the island?s role as a global trading and maritime hub. Further to this development, for the first time in its 260-year history, the Baltic Exchange has opened a regional office in Singapore, its first office outside London, as it seeks to be more responsive to the demands of the surging dry bulk and tanker markets in the region. 1 GIC is a fund management firm of international standing and ranks among the world's leading fund management organisations. It was established in 1981 to manage Singapore's reserves, and currently administers over US$100 billion in assets. GIC invests these funds all over the world in assets such as equities, fixed income and money market instruments, real estate and special investments. Page 8 of 10 Financial and Business Services ? Singapore The venture capital industry in Singapore has also grown steadily over the past few years. At the end of 2005, a total of S17.5 billion in venture capital funds were managed out of Singapore ? a 28 % increase from 2001, when the figure was $13.7 billion. In the same period, the number of funds grew 43% from 115 ? 165. Some incentives for venture capital include: i) Approved funds are allowed partial or full corporate tax exemption income from divestment of shares, foreign dividends and foreign interest income. ii) Permanent residence for foreigners who invest at least $1 million in a new start-up or expand an existing business, or at least $1.5 million into any of the above two, or an approved Singapore-incorporated VC fund. Business/Professional Services Singapore's hosting of major business and professional services headquarters endorses its unrivalled connectivity, solid enterprise and logistics infrastructure, and synergistic business approach. Ranging from Intellectual Property (IP) management, financial solutions, HR expertise, brand management, and shared services, this extensive repertoire allows regional businesses to benefit from integrated business models and improved corporate efficiency. The Singapore government has indicated its intention to award more QFLP licenses in due course. In further efforts to liberalise the legal sector, Singapore has adjusted the bar to admit lawyers trained overseas. Overseas- trained lawyers with six months? experience will now have their 12-month training contract period halved, and this can be completed after Part B of the Bar Exam, which includes a five- month practical law course. To encourage companies to use Singapore as the base to conduct HQ management activities, the Economic Development Board of Singapore provides a new scheme, the Expansion Incentive for Partnership (EIP). EIP is a tax incentive designed to help partnership businesses such as human capital development; legal and arbitration services; audit, accounting and management consultancy firms. UKTI publishes international business opportunities gathered by our network of British Embassies, High Commissions and Consulates worldwide. These opportunities appear in the Opportunities portlet on the relevant sector and country pages on the UKTI website. By setting up a profile you can be alerted by email when relevant new opportunities are published. New or updated alert profiles can be set in My Account on the website. KEY METHODS OF DOING BUSINESS The British High Commission (BHC) can assist in identifying the right agent or partner by producing bespoke tailored and verified market information. These and other chargeable services, which can be commissioned only in the UK through business links or Regional Development Agencies, are now being delivered on-line by Singapore and a number of other posts worldwide. Besides the High Commission, other Singapore-based organisations offering assistance include the British Chamber of Commerce (BritCham), the Singapore International Chamber of Commerce (SICC), the Singapore Manufacturers? Federation (SMa), Singapore's Economic Development Board (EDB) and International Enterprise Singapore (IE Singapore). Both EDB and IE Singapore have offices in the UK (see Annexe). In common with much of Asia, Singapore is a market where the personal touch is all- important and face to face contact is vital. While it is possible to sell "at arm's length", regular visits are essential. Once contact with a likely partner has been established, firms should consider an early visit to Singapore, possibly as a member of a UK Trade & Investment Page 9 of 10 Financial and Business Services ? Singapore supported trade mission (8 British government-subsidised missions will visit Singapore in 2005/2006). An alternative option is participation in UK Trade & Investment supported trade fairs (13 will take place in 2005/2006). Participation in either will provide an excellent opportunity to take a close look at the market for your product/service and the right lead or contact could lead to your gaining a foothold. There is a wide choice of business premises available - from three-storey walk-up former shop-houses in the conserved parts of town, to towering office blocks with high-speed lifts and far-reaching views. Factory space ranges from vacant plots of land to ready-built low-rise and high-rise units, workshops and warehouses. There are also business parks and specialised industrial parks available to suit the different types of industries. A range of serviced business offices is available in Singapore. Rentals in the prime business districts are usually higher than in the outskirts. Rates (Aug 04) for an office in or around the Central Business District (CBD) are between S$1300 to S$1500 per month. Rates for a virtual office (where you can make use of the facilities) range from S$10 per day to S$50 per month. However, land costs are under pressure and negotiation can pay dividends. Business support offices, set up by various foreign government, trade and industrial bodies, are also available to provide their respective enterprises a plug-and-play business incubator to enable them to quickly assimilate into the local business community. These facilities provide fully functional business support offices for immediate occupancy. Some provide secretarial support such as consultation on accounting, financial and legal issues. For further information about doing business in Singapore, please refer to The Singapore government's website: and International Enterprise Singapore When considering doing business in Singapore, it is essential to obtain legal, financial and taxation advice. A useful contact list of lawyers and other relevant professional bodies as well as further information on the fire, police & security sector in the country is available from the High Commission. For further details, please contact: Cheryl Lee UK Trade and Investment British High Commission 100 Tanglin Road Singapore 247919 Tel: +65 6424 4324 Fax: +65 6424 4356 E-mail: Websites: PUBLICATIONS Investor's Guide to Singapore Singapore International Chamber of Commerce Expatriate Living Costs in Singapore Singapore International Chamber of Commerce Page 10 of 10 Financial and Business Services ? Singapore Directory of British Business in Singapore Kompass Singapore Facts and Figures Ministry of Information, Communications and the Arts CONTACT LISTS Useful websites: UKTI?s International Trade Advisers can provide you with essential and impartial advice on all aspects of international trade. Every UK region also has dedicated sector specialists who can provide advice tailored to your industry. You can trace your nearest advisor by entering your postcode into the Local Office Database on the homepage of our website. For new and inexperienced exporters, our Passport to Export process will take you through the mechanics of exporting. An International Trade Adviser will provide professional advice on a range of services, including financial subsidies, export documentation, contacts in overseas markets, overseas visits, translating marketing material, e-commerce, subsidised export training and market research. Page 11 of 10
Posted: 30 September 2010

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