CMFAS RES5 Practice Questions by Topic

The Financial Advisers Act 2001 (FAA) is the primary law governing the provision of financial advisory services in Singapore. The Financial Advisers Regulations (FAR), in force from 1 October 2002, are subsidiary legislation the MAS issues to give effect to the FAA — setting out application rules, exemptions, and conditions. Together they regulate advising on investment products (e.g. life policies, investment-linked policies, unit trusts), issuing analyses/reports, and marketing collective investment schemes. Property agency and tax work fall outside the FAA.

The cornerstone of the sales/advisory process is that a financial adviser must have a reasonable basis for any recommendation on an investment product made to a person who may reasonably be expected to rely on it. This comes from Section 27 of the FAA (and the reasonable-basis test in Section 36), and the detailed standards are set out in the Notice on Recommendations on Investment Products [FAA-N16]. A reasonable basis means the adviser gave due consideration to the client's investment objectives, financial situation and particular needs, and (for a Specified Investment Product) the client's knowledge or experience in that product. FAA-N16 breaks the process into three pillars: (a) Know Your Client (KYC), (b) needs analysis, and (c) documentation and record keeping. A representative must comply with the requirements imposed on the financial adviser when acting on its behalf.

Money laundering (ML) is the process of disguising the origin of assets or funds that are the proceeds of drug dealing or other criminal conduct so that they appear legitimate; terrorism financing (TF) is the provision or collection of funds to carry out terrorist acts. For financial advisers, the framework has two limbs:

The Balanced Scorecard (BSC) Framework is set out in MAS Notice FAA-N20 — the Notice on Requirements for the Remuneration Framework for Representatives and Supervisors and Independent Sales Audit Unit (issued under sections 38, 39 and 58 of the FAA). It requires every licensed and exempt financial adviser (except those covered by FAR Regulation 34A) to build quality-of-advice measures into its remuneration structure. The core idea: part of a representative's or supervisor's pay is tied to non-sales key performance indicators (non-sales KPIs) — how well they advise — not to how much they sell. Poor quality of advice reduces the variable income a representative is entitled to; it does not reward higher sales volume.

MAS Guidelines are issued under Section 64 of the FAA to set out the Authority's expectations and give practical guidance on how financial advisers and their representatives should conduct themselves. They are not legislation — they do not override the FAA or the FAR — but a failure to observe a Guideline may be relied on to establish or negate liability in proceedings, so they carry real weight. The RES5 syllabus groups them across three chapters, each a numbered FAA-G / FSG-G / CMG-G series: e.g. FAA-G01 (grant of licence), FAA-G04 (standards of conduct), FAA-G05 (the term 'independent'), FAA-G13 (conflicts in research), FAA-G15 (online distribution of life policies with no advice) and CMG-G02 (digital advisory services).

A collective investment scheme (CIS) pools money from many investors and invests it collectively under a manager, with returns and risks shared in proportion to each investor's holding. In Singapore the most familiar retail form is the unit trust, though a scheme may also be structured as a VCC (Variable Capital Company) or a sub-fund of one. The Code on Collective Investment Schemes (the 'Code') is issued by the Monetary Authority of Singapore (MAS / the 'Authority') pursuant to Section 321 of the Securities and Futures Act (SFA). It sets out best practices on the management, operation and marketing of schemes for managers, approved trustees, VCC directors and custodians to observe. The Code is non-statutory — a failure to comply does not by itself create criminal liability, but it may be relied on in proceedings and MAS can take a breach into account when deciding whether to revoke/suspend a scheme's authorisation or recognition, or to refuse new schemes. The Code was first issued on 23 May 2002; the revised Code took effect on 1 October 2011 to give managers more flexibility while enhancing safeguards for retail investors.

The Securities and Futures Act 2001 (SFA) and the SFR(LCB) set the market-conduct standards that all capital-market participants — CMS licence holders, intermediaries, their representatives and fund-raisers — must observe. The rules have extraterritorial reach: they apply to acts done in Singapore in respect of capital markets products listed or quoted anywhere, and to acts done outside Singapore in respect of products listed or quoted on an organised market in Singapore. So manipulating a Singapore-listed counter from abroad is still treated as an offence in Singapore. The SFA names seven categories of prohibited market conduct: false trading & market rigging; securities market manipulation; false or misleading statements & information; fraudulently inducing persons to deal; employment of manipulative & deceptive devices; dissemination of information about illegal transactions; and insider trading. Breaches attract fines and/or imprisonment, and can lead to suspension or revocation of a licence.

The Central Provident Fund (CPF) started on 1 July 1955 as a national old-age savings plan and is administered by the CPF Board, a statutory board under the Ministry of Manpower. It has since grown into a comprehensive social-security system covering three needs — retirement, healthcare and housing. CPF contributions are compulsory for Singapore Citizens (SC) and Permanent Residents (PR) working in Singapore who earn more than S$50 a month; foreigners are exempt. For employees earning above S$750/month, total employer + employee contributions currently range from 12.5% to 37% of wages depending on age (37% for those aged 55 and below). Self-employed persons must contribute to MediSave if their yearly net trade income exceeds S$6,000.

How MAS regulates investment-linked policies and product distribution under MAS Notice 307 (and Notice 302): fund launch/change notifications, valuation and pricing, reporting timelines, redemption windows, valuation-error compensation and disclosure.

How MAS technology-risk, cyber-hygiene, DPI and digital-advisory (robo) rules apply to FA firms and reps: system resilience, cyber controls, no-advice direct insurance, and algorithm-based advice.

The word 'ethics' derives from the Greek ethos; Aristotle taught that the ethical person is one with virtuous habits (e.g. truthfulness, justice, honour, good temper) that can be learned through education, training and practice. Professional ethics is a set of codes of conduct or moral principles governing how a professional deals with clients, fellow professionals and the public — it means doing the right thing even where the consequence is losing the business. Ethics matters intensely in financial services because the products (insurance, capital-markets and banking products) are intangible: clients cannot inspect them and must rely on and trust the representative for suitable advice. Trust is easily destroyed ('it takes twenty years to build a reputation and five minutes to destroy it'), and a prevailing lack of ethics invites heavier regulation. Former MAS Managing Director Ravi Menon stressed 'building a culture of trust' grounded in strong ethical standards.

A conflict of interest is a situation in which the objectives of two parties are incompatible or misaligned, and where a person can use their position to derive personal benefit from their actions or decisions. Because financial institutions are complex, multi-functional intermediaries, conflicts arise from time to time — and if managed properly they generally cause no problem; mishandled, they create serious ethical (and sometimes legal, e.g. corruption) problems. The study text distinguishes conflicts a representative 'finds' himself in ('built-in') from those he 'creates' through his own actions. It also lists five types of misalignment: (a) representative vs client; (b) institution, representative and client; (c) institution vs client; (d) representative vs one or more of his clients; and (e) institution vs one or more clients.