New laws ‘level playing field’ for corporate service providers, but could lead to industry consolidation

New rules for corporate service providers will raise the bar for the industry as a whole, but may lead to smaller players being priced out, said industry observers.

This comes as a new Bill, passed in Parliament on Jul 2, will be tightening regulations for these providers, who offer crucial services for company incorporation, in a bid to stem money laundering-related activities in Singapore.

Among the changes, lawyers who spoke to The Business Times highlighted the new requirement for entities or persons providing corporate secretarial services to register with the Accounting and Corporate Regulatory Authority (Acra) as registered corporate service providers.

There are currently around 2,900 such providers registered with the regulator. They range from larger players such as BoardRoom, which has over 850 professionals across the Asia-Pacific region, to one-person providers with a sole registered qualified individual.

Chenthil Kumarasingam, dispute resolution partner at Withers KhattarWong, noted that this was a “major shift” brought by the recently passed Bill.

Registered providers will have “comprehensive compliance obligations related to anti-money laundering and countering the financing of terrorism (AML/CFT)”, he said.

Under the old laws, individuals are not required to transact with Acra before providing corporate secretarial services. This means those that provide services for foreign companies would not have been regulated under the previous set of rules.

S Suressh, partner and co-head of international arbitration at Harry Elias Partnership, noted that with this change, “foreign corporate service providers who have so far been able to operate in an unregulated bubble will now be regulated by Acra”.

The tightening regulations for corporate service providers come as Singapore took steps to strengthen its AML laws.

During the debate on the Bill, Second Finance Minister Indranee Rajah noted that corporate service providers serve as gatekeepers against the misuse of companies, as they support several key company activities.

Between 2021 and June this year, Acra has imposed 41 sanctions against corporate service providers and registered qualified individuals. In 31 of the cases, the registrations of the provider or individual were suspended or cancelled.

Opportunities

Corporate service providers who spoke to BT welcomed the regulatory amendments. Lancaster Lee, managing director of One Tax CM, said this move will “level the playing field”.

“When you’re registered as a corporate service provider, you definitely need a robust system of screening checks and compliance,” he said.

He added that One Tax CM screens all its prospective clients, and did so even before the implementation of the new rules.

“With the implementation of the new rules, there is an opportunity for everyone in the industry to improve (their) standards,” noted Lee.

Justin Lim, partner and Singapore head of outsourcing at Forvis Mazars, said corporate service providers will be better valued, as the stricter measures will push the providers to think of ways to “improve the experience” for clients who require corporate secretarial services.

“If I go to two corporate service providers – A and B – and A can make the onboarding experience much less painful compared to B, I will obviously go with A,” he said.

Tapping automation for onboarding checks, for example, can make the compliance process much smoother, and this differentiation will make the industry more credible as a whole, he added.

Meanwhile, Harry Elias Partnership’s Suressh believes the new regulatory requirements may push some foreign corporate service providers to leave the Singapore market if they cannot meet these requirements, thus creating opportunities for those competitors who are more able to do so.

“By subjecting the foreign corporate service providers to regulation, there is, to a certain extent, a levelling of the playing field between the local and foreign providers,” he said.

Withers’ Chenthil said there is also “potential for new business in providing specialised compliance-related services”.

Challenges

That said, smaller players may also struggle to comply with the higher requirements, which includes the implementation of hefty fines for errant corporate service providers and their senior management – up to S$100,000 for each breach. Previously, providers who breached the rules would be fined S$25,000.

Jason Tan, forensic and advisory partner at KPMG in Singapore, said any cost increases for corporate service providers’ services will depend on the maturity and abilities of each provider.

“For corporate service providers who may still be struggling to comply with existing obligations, these additional requirements could add on to their overall costs and put pressure on them to raise the prices of their services,” he said. This could lead to some consolidation in the industry, he added.

Despite this, Raymond Lam, director at Drew & Napier, believes consolidation in the industry would not be solely driven by changes in the law.

“Private equity funds have been attracted to the corporate service provider industry, given its growth potential and stable returns,” said Lam, who is also former chair of the Chartered Secretaries Institute of Singapore. He cited alternative investment firm Hillhouse’s acquisition of Singapore-based provider InCorp Global in February this year as an example.

Lam added that corporate service providers who are already registered would see a “modest increase” in compliance costs, as the requirements are not exactly new. However, corporate service providers who have to be newly registered with Acra are likely to incur some set-up costs, to ensure their operations are compliant with the law.

Josephine Chee, commercial litigation and white-collar crimes practices partner at Rajah & Tann, noted that corporate service providers should actively review their existing practices, customer profile and business activities, to identify the risks involved and if more robust steps are to be taken to ensure compliance with the law.

Corporate service providers are not the only ones subject to tighter money laundering regulations. A second Bill with accompanying AML rules for companies and limited liability partnerships was also passed on Jul 2.

Singapore is also looking to extend its AML coverage to prosecute money mules under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act.

Deloitte Singapore strategy, risk and transactions partner Lydia Low said: “The recent moves by the authorities reflect a calibrated ‘whole-of-system’ approach to strengthen measures to combat AML/CFT/proliferation financing risks across different gatekeepers and sectors.”

Ramesh Moosa, EY Asean and Singapore forensic and integrity services leader, added that law enforcement agencies across countries often collaborate closely to solve crimes, as money laundering activities often involve cross-border transactions.

Overall, observers believe the new AML measures will lead to better monitoring and enforcement in Singapore.

Said EY’s Moosa: “Our financial system is only as strong as its weakest links.”\

Source: Business Times © SPH Media Limited. Permission required for reproduction.

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