Lim Hwee Hua
Singapore
“Mr Chairman, Sir, I believe the Minister for Finance has actually addressed that quite adequately in the Budget Statement. I will encourage the Member to read the Hansard. As I recall, he did say that our projections for revenue have been made for the next five years and we do not target a particular source of revenue.”
“Mr Speaker, Sir, I would encourage the Member to file a question for MCYS, if she would like to discuss safeguards further. What I would comment here is that at the outset when we conceived the whole Integrated Resorts idea, there were many business risks: whether it is country risk or the timing of the business cycle and so on.”
“Mr Speaker, Sir, the supplementary questions raised by Ms Denise Phua have actually been debated to some detail under the different heads, in terms of the intended strategy – why we are having Integrated Resorts and casinos in the first place. This has been debated quite extensively by the Ministry of Trade and Industry.”
“Madam, I take the Member's point about the need for checks to be done professionally, and indeed this is the case, and that is why the officers would be sufficiently trained to conduct these checks in a professional manner.”
“The proposed amendments are necessary in order to effect the new financing framework, to allow for greater contestability to be injected into the RTS industry, as well as to ensure security and continuity of the RTS operations. Madam, I beg to move. Question proposed. 4.28 pm”
“Because of the complexity of the issues and the need for us to continue consulting other players who have already been operating in that space, as well as consulting the business community in greater detail, the study would take the better part of this year. OUTCOME OF 50PLUS EXPO 6.”
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“Sir, all these factors have an impact at the individual level. Whilst retrenchment at the personal level is painful, it would be better to accept such restructuring as harsh realities than to hope that something can be done by the Government to these seemingly unsympathetic banks or ungrateful large companies. Even if our jobs were intact, we would have to accept that we would probably have to do more, learn new skills and adjust to new working conditions, perhaps all at the same time. For those of us who have been retrenched, new employment would be difficult to come by and would most likely mean taking a lower pay and position. Sir, at the individual level, self-esteem will go down and this is where the moral support of the family or the community can be extremely helpful. There are anecdotal signs that more marriages come under stress when one partner, especially the breadwinner, loses his job. So what are some of the hopes we can hold on to and those that we should inject a sense of reality? Sir, we can certainly cling onto the assurance that the Government will continue to devote plenty of resources to developing human capital to the whole spectrum of pre-school to tertiary education, for skills upgrading, re-skilling and job-matching whilst ensuring at the same time that we anchor enough economic activity in and from Singapore into the global or regional market. As long as we are proactive and receptive, we will be able to receive help on adapting to changing job and market demands. However, Sir, we would also have to manage our wage expectations. For the past decade, our wage growth has averaged more than 7% in nominal terms and about 5% in real terms.”
“China has taken a strategic decision to invest abroad for a variety of reasons, including plans to secure new supplies of natural resources. According to the Far Eastern Economic Review, Chinese state-owned offshore oil company, CNOOC (China National Off-Shore Oil Corporation), plonked US$585 million for some Indonesian oil and gas assets. In Australia itself, Chinese investment, primarily in iron ore and aluminium businesses, stood at US$1.2 billion at last count. Secondly, long-range planes, when available, or huge shipping alliances, may not need to call at Singapore, if there is no business reason to do so. Therefore, an excellent Changi Airport or a successful PSA alone will not get us very far. Likewise, our stronghold on derivatives trading in the region will constantly be challenged unless we give reasons to traders to always use us, and so on. I would now like to move on to the twin effects of technology and globalisation on competition itself. Sir, globalisation itself is already increasing competition, and technology is accelerating the pace of globalisation. So businesses are now growing slowly, if at all, and only if they adapt. Businesses cannot sit still and let uncomfortable trends destroy them. Not to react would only mean they die out. Businesses really have no choice but to react ruthlessly, and this would come in many forms, eg, downsizing in response to a dip in demand, very much like what we have seen in the travel business in the aftermath of September 11 (911); secondly, relocating lower-end production out of Singapore; thirdly, bringing in talent from elsewhere to keep the business going; fourthly, merging for critical mass, such as that we have seen in the banks; or fifthly, even getting out of certain businesses altogether.”
“Mr Speaker, Sir, I beg to move, That the following Address in reply to the Speech of the President be agreed to:- "We, the Parliament of the Republic of Singapore, express our thanks to the President for the Speech which he delivered on behalf of the Government at the Opening of the First Session of this Parliament.". Mr Speaker, Sir, we Singaporeans have, in the short space of the last three to four years, received many wake-up calls in our relatively cosy rooms. In his Address at the Opening of the First Session of this Parliament, the President has elaborated on the challenges confronting Singapore. I would like to relate these challenges to what I see as the three wake-up calls at the individual Singaporean level. I shall begin with the one that is ringing the loudest and most incessantly. Wake-up Call Number 1 What we thought were unshakeable areas of competitive advantage that Singapore has are now vulnerable, and this is largely due to a confluence of several factors: firstly, the global slowdown led by the US economy; secondly, challenging regional economic and political conditions; and, thirdly, increasing competition. As a regional hub, Singapore will face intensifying risks of losing key parts of the critical mass. I would like now to discuss this against a backdrop of shifts in economic growth concentration and investments. Sir, economists are projecting that economic growth in our immediate region of around 3-4% for each of the next two years will be overshadowed by the North Asian region, led by a potential 7-8% growth in the huge China market. If we were to consider this concentration on an even wider perspective and think GNP rather than GDP, then China's reach extends even further.”
“Recognising that businesses, especially the smaller operations, could be financially strapped, the Government has sought to lower operating costs and ease cash flow via significant moves, including the steps taken to improve access to funds and the higher property tax rebate would be extremely helpful. Equally helpful would be the corporate tax rebates amounting to a hefty 50% rebate which will assist SMEs who may need help to continue investing in the business. Sir, on a general note, there is comfort in the example set by the Government to restrain wage cost in the civil service as well as in the move to suspend land sales and remove the anti-speculative property measures. Moreover, the move to pump prime the economy to help bolster economic activity is also commendable and much needed. The introduction of the New Singapore Share is significant in bringing home the message that we should stay united as a people as we take ownership of our own future. In conclusion, as the Deputy Prime Minister has stated, the challenges of economic strategy and employability are really long term and fundamental issues. However, the downturn has heightened some of these concerns which the Government has now addressed in a very concrete manner. I would like to urge the DPM to ensure that all these measures would be compassionately implemented. I believe the unity of Singaporeans and their support for the Government's endeavours will see us through these testing times.”
“But I would just highlight and applaud the following three moves: firstly, the inclusion of white collar and management staff, as a higher proportion than before, has been dislocated by both industry restructuring and the downturn; secondly, the devotion of sizeable amounts towards SDF support so as to cast the net even wider; and, thirdly, the refinements to both the work permit and employment pass criteria to ensure that foreign contributors are those whose skills we lack rather than those who are simply more price competitive. Also, recognising the individuals and families who fail to secure employment for a while may experience cash flow problems, the Government has introduced ample reliefs in meeting basic needs, such as household living expenses, education and health. We can draw comfort from the freeze in education fees and suspension in payment of loans, the reduction in electricity tariffs and extension of rebates to lower income families. Sir, what is especially noteworthy are the following three measures: firstly, the extension of temporary assistance to lower income HDB flat owners, especially those in three and four-room flats as they have also been badly affected, but have hitherto been excluded or ineligible for assistance under current rules; secondly, hospital bills - the 10% rebate for B2 and C ward charges and the 40% assistance for those who are retrenched; and, thirdly, additional help through CCCs for an effective meeting of needs at the more personal level. Secondly, on the business front.”
“Sir, the current downturn is very different from the last. The 1997/98 crisis was felt strongly throughout Asia and arose from several factors, including the high level of foreign debt and the need for major structural and economic reforms. The growing US economy then was a huge mitigating factor. Despite there being some tell-tale signs, Singaporeans were largely caught by surprise. Coping with the crisis then required a lot of effort. This time round, the effects are global. In Singapore, over the last few years, we have proactively begun tackling several challenges, namely, reviewing the type of manufacturing activities and investments, promoting knowledge intensive industries and addressing structural unemployment issues. Hence, psychologically, Singaporeans are prepared for the challenges that we face as a country. However, the global nature of the downturn aggravated by the terrorist attacks in the US have added to the uncertainty and would prolong the recession. Singaporeans therefore need to be assured that we have what it takes to ride out this challenging phase of our nation's growth. In this regard, the second package unveiled by the Deputy Prime Minister will go a long way towards providing the much needed assurance in a very concrete way but which, at the same time, contains a sense of reality. Sir, let me now comment specifically on where assurance can be found by, firstly, individuals and families, and secondly, by businesses. Firstly, individuals and families. Recognising that those who are retrenched would need assistance to be retrained, re-skilled and emplaced onto jobs, the Government has introduced a whole slew of schemes.”
“The penalties imposed under the Act will also be increased to achieve a more appropriate level of deterrence today. At the same time, the maximum fine for corporations will be set at twice that for individuals, as corporations have more financial resources. Finally, I refer to clause 35 of the Bill, which gives our Courts jurisdiction to adjudicate on acts that take place extra-territorially. The increased use of the Internet for sale and distribution of financial products, including insurance, has resulted in a situation where it is possible for a person outside Singapore to target sales at consumers in Singapore. These acts, carried on externally, may have an effect in Singapore and could harm consumers. Other clauses of the Bill that I have not elaborated on are minor technical amendments to clarify or expand the existing provisions, or to remove obsolete provisions. Sir, I beg to move. Question proposed.”
“The amendments will provide a framework for such agreements or understandings to be given due effect, while ensuring that, in the process, persons affected are given the due process of law. Let me now turn to the final set of amendments which updates the Insurance Act and brings the provisions in line with the other financial regulations. Clause 28 of the Bill inserts new Part IIIB, providing for the procedures to handle appeals to the Minister. A right of hearing is currently provided, in both the Insurance Act and the Intermediaries Act, when the Authority intends to cancel an insurer's or a broker's registration. At the same time, an appeal to the High Court is provided against a decision of the Authority in relation to approval of key personnel. To streamline existing provisions, it has been decided that a right of hearing, plus an appeal process, should be made available in relation to the exercise of a discretionary power by MAS, in respect of:- 1. Cancellation of registration; 2. The removal of key personnel; and 3. Prohibition from carrying on business. To make the appeal process more efficient, the amendment will provide for the appeals to be made to the Minister, who shall convene an appropriate Advisory Committee of relevant but independent appointees, to hear the appeal, and advise the Minister accordingly. Moving on to clause 33, section 55 of the Act will be amended to allow the MAS to compound offences to carry a fine only as a penalty. The power to compound will be limited to situations where the offender has admitted the offence, and has agreed, in writing, to have the fine compounded. The amendment will reduce the administrative cost of enforcing the Act in circumstances where the offender has admitted the offence and agreed to pay the fine.”
“With the insertion of Part IIA, section 34 will be repealed and the current arrangements for Lloyds will be re-created as a Scheme under Part IIA, to be called the Lloyds' Scheme. MAS would like Lloyds to go beyond the current arrangements and, in fact, establish a physical presence in Singapore. To permit this physical establishment, a second Scheme, called the Lloyds Asia Scheme, will be set up and Service Companies representing the underwriting syndicates of Lloyds will operate under this Scheme. The added insurance capacity from these syndicates in Singapore, and the expertise to be brought in with the Service Companies will enhance our market as a regional insurance centre. Third, appointment of actuaries. This is covered in clause 22 of the Bill. The appointed Actuary of life insurers currently certifies the financial condition of the life insurer annually. Non-life insurers and reinsurers are not subject to similar requirements at the moment. This amendment will require non-life insurers and reinsurers to obtain actuarial certification of their insurance liabilities annually, to ensure that the reserves maintained are sufficient to meet all ultimate liabilities. These changes are made after consultation with the non-life insurance industry, and MAS is working closely with industry representatives on the detailed requirements. Fourth, improving regulatory supervision. Clause 27 inserts a new Part IIIA to provide for the mutual exchange of assistance between regulators of different countries. With the growing internationalization of insurers and cross-border financial services, cooperation and information exchange between regulators of different jurisdictions is an added advantage to achieve efficient supervision.”
“MAS will be empowered to direct the removal of the CEOs or directors of an insurance broker, if these persons fail to perform their duties and functions. MAS will be permitted to create a register of these key personnel removed from office, as well as of other persons prohibited under the Act from becoming intermediaries. 6. MAS' powers to prohibit or to direct any removal of key personnel, will be subject to a right of hearing as well as to a right of appeal to the Minister. Let me now turn to the other amendments which are not consequential to the Financial Advisers Bill. For prudential and industry development reasons, we have introduced the following amendments. First, removing the exemption for credit insurers. Clause 2 of the Bill removes the current statutory exemption from registration granted to an insurer that is primarily engaged in export credit business. With the removal of this exemption, all credit insurers will be required to be registered under the Insurance Act, and be subject to MAS' supervision. These insurers will have to comply with all prudential regulations, such as minimum paid-up capital and solvency margin requirements. Second, facilitating players like Lloyds to operate here. Clause 19 of the Bill inserts a new part of the Act, Part IIA, to provide for the creation of schemes that will allow a defined group, class or association of foreign insurers to be established in Singapore under the Scheme, to underwrite insurance business. Players such as Lloyds of London, which is essentially an insurance marketplace with insurance capacity provided by members who are organised annually into syndicates, will then be permitted to set up such a scheme here.”
“As a result, we need to migrate some of the provisions of the Intermediaries Act to the Insurance Act. These provisions are those that relate to all insurance agents, non-life insurance brokers and all reinsurance brokers, which will henceforth be regulated under the Insurance Act. Secondly, it is to ensure that prudential standards are kept current and appropriate while, at the same time, providing a conducive environment for growth and competition in the insurance industry. Thirdly, it is to update the Insurance Act in line with the provisions in the other financial regulations. Let me first deal with the migration of the Intermediaries Act provisions, in clause 20 of the Bill. The provisions, inserted as Part IIB of the Act, will generally remain the same. However, MAS has taken the opportunity to make some changes for alignment with the Financial Advisers Bill. These changes are:- 1. Financial institutions acting as insurance agents will be required to have written agreements with the insurers, to set out clearly the rights and responsibilities between these parties. 2. Financial institutions acting as insurance agents or insurance brokers will be subject to the same market conduct rules and standards applicable to all insurance intermediaries. This is to align with the Financial Advisers Act and to ensure a level playing field. 3. Insurance agents will no longer be allowed to retain the interest earned from the moneys held in the insurance brokers' premium accounts. 4. Insurance brokers will no longer be allowed to grant unsecured loans or advances to their directors, and such unsecured loans to their employees will be capped at $3,000. 5.”
“So, I do not expect significant dislocation. As for nurturing a group of independent financial advisers, indeed the introduction of this Bill will help to foster the development of independent financial advisers which, I hope, will provide greater depth to the local industry, alongside the existing players in the market. These IFA firms are likely to be owned and operated by experienced professionals. In licensing such IFA firms, MAS will take into consideration the financial resources of the company as well as the qualifications, integrity and experience of the key officers. The capital requirements for a corporation applying for a Financial Adviser's licence will not be onerous and will be lower than existing requirements. These new capital requirements for financial advisers do not mean that MAS is relaxing its prudential standards; rather, it is another example of MAS' shift away from the one-size-fits-all regulatory approach to a more risk-based supervisory regime. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [BG Lee Hsien Loong]. Bill considered in Committee; reported without amendment; read a Third time and passed. INSURANCE (AMENDMENT) BILL Order for Second Reading read. 2.32 pm The Second Minister for Finance (Mr Lim Hng Kiang): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The amendments introduced in the Insurance (Amendment) Bill are necessary because of the following reasons: Firstly, with the introduction of the Financial Advisers Bill, which DPM has just moved the Second Reading in this House, this will result in the repeal of the Insurance Intermediaries Act.”
“Financial advisers can choose which of these activities they wish to engage in for which there will be different requirements that must be met, such as passing of relevant competency examinations. It is not the intention of the Bill to license only the class of professionals providing comprehensive financial planning advice. As for splitting the licence into distinct categories 1, 2 and 3, one objective of the Bill is to respond to the industry trend of product convergence and the emergence of distribution channels which cross-sell investment products. I think if we introduce different sub-categories of licences, we are likely to confuse the public. We propose to deal with the problem by requiring advisers to disclose what products they are qualified or authorised to provide financial advice on before they deal with the investing public. Mrs Lim expressed concern about competition and whether there will be significant dislocation and, if so, whether we can help intermediaries who will be affected. The impact of globalisation and convergence of financial products and services have affected all financial services sector even before the introduction of this Bill. The life insurance industry, as I told you, has subjected itself to higher standards following the recommendations by the Committee on Efficient Distribution of Life Insurance earlier this year. These recommendations are being implemented and will result in improved knowledge, skills and efficiency of the agents. Life insurance agents will also benefit from a wider range of products for distribution with the introduction of the FA Bill. There will be more competition and perhaps dislocation. There will also be more opportunities, as intermediaries can broaden their activities if they master their skills.”
“The whole idea of the business conduct requirements is that all individuals should have the necessary professional competence and standards before they can operate as representatives of financial advisers. While MAS could prescribe minimum standards which financial advisers' representatives should possess by setting examinations and continual educational requirements, ultimately it is the responsibility of the financial advisers to ensure that they upgrade their skills to provide value-added services to their clients. Financial advisers who do not strive to upgrade their skills and who are content with meeting only basic requirements can expect to lose clients to more competent advisers who provide better and higher quality services. I am not keen to control many words, "financial adviser", "financial consultant", "financial planner", or words to that effect. I think what we will do is to restrict the use of the term "financial adviser", one name, to holders of a financial adviser's licence and exempted entities. We are mindful that there are some market participants currently holding themselves out as financial advisers. However, we believe that restriction on the usage of the term "financial adviser" will better enable investors to identify whether they are receiving financial advice from an entity which is licensed by MAS, as opposed to an entity not regulated by MAS. We do not intend to restrict the use of other titles, like "financial planner", "financial consultant", and such. However, the investing public should be aware that people who use such titles may or may not be regulated by MAS depending on the services that they offer. Financial advisers are permitted to provide advice on investment products, distribute unit trusts and arrange life insurance policies.”
“This is very much in line with the regulatory framework in other jurisdictions. MAS will engage the industry bodies representing financial planners, where appropriate, and seek their views on regulatory issues affecting the financial advisory market. As a regulator, MAS will facilitate and encourage healthy market development and work with industry bodies to encourage improved professional standards to promote Singapore as a centre of excellence in this field. Next, Mr Ong asked about retrenchment and unemployment on the part of insurance agents, financial analysts and people like that, as a result of this Bill. I would like to allay this concern because existing professionals will be able to engage in the existing activities that they have been authorised to do when the Bill is enacted. However, one major objective of introducing this Financial Adviser regulatory regime is to provide an integrated and consistent regulatory framework for market intermediaries engaging in similar activities across a broad spectrum of different investment products. This would facilitate the setting and maintenance of consistent professional standards and business conduct rules for the provision of financial advice. As we introduce progressively new standards to raise the standards of professionalism and knowledge, existing players will also be expected to meet these new standards. And we are already doing it in insurance, for example, with the recommendations of the Committee on Efficient Distribution on Life Insurance. As for the question of different categories of licences, I think this would defeat the objective of having a single licensing regime.”
“Whilst our market does not appear to support such paid services at the moment, it is felt that the Government could help facilitate the sustainability of any entrepreneurial efforts. The current consolidation within the financial sector may well inspire some experienced professionals to consider providing independent advice, say, on financial planning. If capital and licensing requirements are too stringent or prohibitive, then fledgling efforts would not survive. I would like to ask the Deputy Prime Minister to consider further measures to help nurture such a group of advisers, which, I believe, is performing a very useful role in the USA. Sir, I support the Bill. BG Lee Hsien Loong: Mr Speaker, Sir, in response to Mr Ong Kian Min about upgrading the entire industry, the types of services provided by financial planners vary widely. Sometimes, it assesses every aspect of the client's financial profile - savings, investment, insurance, tax, retirement, estate planning - and help them to develop detailed strategy to meet the objectives. Others may call themselves financial planners but may only provide advice on a limited range of products and services. MAS currently regulates all aspects of financial planning relating to securities, futures and insurance. But tax, retirement and estate planning activities will not come under MAS' regulatory ambit, and this is going to continue under the Financial Advisers Act. Hence, only financial planners who conduct activities regulated under the FAA need be licensed as a financial adviser and only in respect of those regulated activities. The financial planner may conduct other activities, such as retirement and tax planning, but this will not be subject to MAS' supervision.”
“Mr Speaker, Sir, the Financial Advisers Bill answers the need for a legal framework for both the burgeoning range of investment products and distribution channels, and the convergence of various financial products. I support the establishment of this framework which will help ensure, amongst other things, the integrity of our financial markets in general. Sir, I would like to however briefly raise two issues, one of which will arise as a result of a single licensing concept and the other which concerns the possibility of unwitting discouragement of entrepreneurial efforts. Firstly, increasing competition. Whilst it makes perfect sense to adopt a consistent approach to the licensing of persons engaging in financial advisory activities, we must be mindful of the implications of such a convergence. As alluded to, opportunities to advise on a wider range of financial products will increase, as will, on the flip side, competition. Sir, this could precipitate a falling out of the less sophisticated advisers who have only very narrow and specific expertise. For example, remisiers who are adept at broking stocks can now extend such expertise into, say, investment-linked insurance policies, which have hitherto been marketed by insurance agents. As such, product specialists could now face even more competition. I would therefore like to ask the Deputy Prime Minister if he envisages this to be a significant dislocation and, if so, whether assistance can be rendered to help interested persons develop other capabilities. Secondly, capital requirements for independent financial advisers. Sir, in a market where most services are typically offered on a proprietary or an agency basis, the need for independent financial advice will be felt increasingly.”
“Where MAS is of the view that any officer of the Licensed Financial Adviser does not measure up to this benchmark, it may direct the company to remove such officer from his office if the Authority thinks it necessary in the public interest or for the protection of investors to do so (under clause 57). Inspection Power of MAS On-site inspection of intermediaries is an integral part of MAS' supervisory framework. MAS' inspection power will be provided for under clause 70 of the Bill. Appeals to be made to the Minister The appeals process in the Bill is similar to that in the Securities and Futures Bill. Sir, I beg to move. Question proposed.”
“However, to level the playing field and to apply uniform standards to all market participants engaging in the same types of activities, such Exempt Financial Advisers will be required to comply with similar requirements on market conduct and practices as the Licensed Financial Advisers in respect of their financial advisory activities. Power to Issue Prohibition Orders Presently, MAS has the power to issue an order to prohibit undesirable persons from engaging in life insurance broking activities in Singapore. This mechanism is also found in other jurisdictions with more developed markets. MAS has found this an effective regulatory tool and proposes to introduce it in the Bill. Clauses 59 to 62 of the Bill relate to prohibition orders. MAS will have the power to issue an order to forbid a person from providing any or all of the financial advisory services regulated by the Bill, either permanently or for a specified period. MAS may vary or revoke a prohibition order either on the application of the person against whom the order is made, or on its own initiative if the Authority is satisfied that it is inappropriate to continue with the prohibition order because of a change in the circumstances on which the prohibition order was issued. Appointment and Removal of officers CEOs and directors are the key persons of a company. It is important that such key appointments are held by persons of integrity who are fit and proper. Therefore, MAS will require Licensed Financial Advisers to seek the Authority's prior approval for the appointment of these key personnel (under clause 56). The fit and proper criterion is a continuing requirement.”
“Prudential Requirements for Licensed Financial Advisers Licensed Financial Advisers must meet certain prudential requirements, such as minimum paid-up capital and financial resources, at all times. These requirements are necessary in order to establish the Financial Adviser's commitment to operate in Singapore and to ensure that it possesses a minimum level of financial resources to discharge its liabilities and obligations as and when they fall due. The capital requirements will be minimal and will be lower than existing ones. To complement them, Licensed Financial Advisers will need to procure a professional indemnity insurance, as is the practice in other professional fields. Clause 10 empowers MAS to take regulatory actions in the event of the Financial Adviser's inability to meet the minimum financial resource requirements or its failure to have in force a professional indemnity insurance. MAS believes that a right mix of financial requirements and insurance cover will result in better utilisation of the Licensed Financial Adviser's financial resources, without compromising investor protection. Exemption for Financial Institutions Supervised by the Authority under Other Acts As mentioned earlier, financial institutions which are already supervised by the MAS under other Acts will be exempted from the need for licensing under the Bill. This will minimise regulatory overlap and reduce compliance costs for these institutions, which will be referred to as Exempt Financial Advisers in the Bill.”
“In some cases, these financial advisers will not be connected to any product providers, such as fund managers or insurance companies, and will act independently of them. Such independent financial advisers will represent the interests of their clients, rather than the interests of specific product providers. Financial institutions that are already licensed by MAS and also provide similar advisory services, such as banks, fund managers and insurance companies, will be exempt from licensing under the Bill but will have to observe the same business conduct requirements. In preparing the Financial Advisers Bill, MAS has conducted public consultation on an earlier draft. All comments were carefully considered and where relevant were incorporated into the Bill. I will now highlight some of the key policy initiatives the Bill contains. A Single Licensing Regime The FA Bill will introduce a streamlined licensing regime for persons engaging in financial advisory services on securities, futures and life insurance. Clause 6 provides that a person must not act as a financial adviser in respect of any financial advisory service unless he is authorised by a Financial Adviser's licence or is an exempt financial adviser. The Financial Adviser's licence will replace the existing licences required under the SIA, FTA and registration under the IIA. Clause 7 requires that any individual who acts on behalf of a licensed Financial Adviser be similarly licensed by the Authority. As representatives act on behalf of the licensed Financial Advisers and, in most cases, deal directly with clients, it is important that these individuals are suitably qualified and are subject to regulatory requirements and are under MAS' supervision.”
“Financial intermediaries are now expanding beyond traditional lines of business to provide "one-stop" service to meet investors' financial needs. The present regulatory model of multiple licensing has its merits when financial products are distinct and dealt with by different professions. However, this is no longer the case. Therefore, the FA Bill will introduce a new integrated regulatory and supervisory framework for Financial Advisers. The new Bill will consolidate the current regulatory regime governing the provision of financial advisory services in respect of securities, futures and life insurance products, which are currently contained in three different Acts, namely, the Securities Industry Act (SIA), Futures Trading Act (FTA) and Insurance Intermediaries Act (IIA), into a single legislation. There are several benefits from consolidating the legislation regarding the provision of financial advice into one Bill. Firstly, streamlining the regulation of Financial Advisers, allowing a single licence to authorise the giving of advice on a wider spectrum of financial products, will reduce administrative and compliance costs, as compared with holding multiple licences under the securities, futures and insurance laws. Secondly, it will establish a consistent set of regulatory requirements across the financial advisory industry. This will reduce the scope of regulatory arbitrage, level the playing field and facilitate the maintenance of uniform professional standards across the board. Thirdly, the Bill will create a new class of licensed financial advisers. These professionals will be able to provide investment advice on a wide array of financial products, and also sell unit trusts and their close substitutes, such as investment-linked products.”
“" Overview The Financial Advisers (FA) Bill proposes to regulate Financial Advisers and their representatives, and to repeal the Insurance Intermediaries Act (Chapter 142A of the 2000 Revised Edition). It will govern all financial advisory activities in respect of investment products, and the marketing of specific investment products, namely, life insurance policies and collective investment schemes across all financial institutions, from banks, life insurance companies and insurance brokers, to independent advisers. As mentioned earlier, corporate finance advisory activities will be regulated under the Securities and Futures Bill. The current regulatory framework for Financial Advisers is contained in various pieces of statutes, depending on the asset class they advise on. These statutes are the Securities Industry Act, Futures Trading Act and Insurance Intermediaries Act. Over the past few years, product innovation has resulted in the emergence of new and complex products that have blurred product lines. Financial institutions do not just offer "plain-vanilla" instruments these days. For instance, insurance companies offer investment-linked life insurance products (ILPs), which are similar to unit trusts, except that they have an insurance element attached to them. Distribution channels for financial products are also no longer confined to traditional boundaries and institutions. Investors may now purchase unit trusts from various sources: directly from fund managers, banks, stockbroking firms or Internet portals. Besides the traditional agency sales force, life insurance companies are relying on external parties, such as life insurance brokers and banks, to market their policies.”
“Finally, Mr Sin Boon Ann has raised several points in his speech, many of them have to do with the implementation and operation of the legislation. This is a new piece of legislation, it is complicated. We have tried our best to address all the uncertainties and lacuna by exposing it to the industry for public comments, taking in comments and then going several rounds of consultations. We think that what we have is workable but it is complicated and I would not be surprised that as we operate the scheme over the next years, we will find problems or parts which need to be changed or fixed, and we will come back and have those parts amended by Parliament. I would just like to address one point which Mr Sin raised, which is the issue of boutique firms or individuals who are small and who want to become market intermediaries. It is not our intention to make it difficult for ex-bankers and employees of financial institutions to start up on their own and enter corporate finance or other activities. So we will have a level playing field. And if they are able to do it and if they have the expertise, I think the framework will enable them to do so. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [BG Lee Hsien Loong]. Bill considered in Committee; reported without amendment; read a Third time and passed. FINANCIAL ADVISERS BILL Order for Second Reading read. 2.03 pm BG Lee Hsien Loong: Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time.”
“Investor education is a collective effort by all players in the securities industry. Local players have been doing their bit in recent years, eg, Singapore Exchange organises public talks and exhibitions on share investments and trading regularly. There is an Investment Management Association of Singapore that has sponsored radio talks and contributed articles to the press on investments in various financial products. The Securities Investors Association of Singapore has taken its investor education programme to neighbourhood community centres. This is a continuing effort. MAS supports and encourages these initiatives in investor education. We will be open to helping out with co-funding from the financial sector development fund for specific projects. In addition, MAS will play a coordinating role, identifying gaps and filling them where it is necessary. And we will put general investor education materials on our MAS website. The shift to disclosure-based regulation makes investor education more important, because companies now no longer require MAS' approval to launch new investment products or schemes, provided that basic requirements are met and all relevant information is disclosed to investors. The public will be reminded time and again that the primary responsibility for making investment decisions lies with themselves and, over time, they will be able to learn to be able to look out for their own interest. There is no alternative. We have to shift. We cannot go on the basis that the regulator, or MAS, or the Exchange will make sure that every investment is safe and sure to make money. If you want to invest, you have to make your own judgement, find out your own information and make your own decisions.”
“There are many variables that determine whether or not a case should be settled, the potential number of claimants or the amounts involved cannot be used to determine the issue, and the civil claim regime is meant to operate independently of anything which anybody else may wish to pursue his claim in a civil action. Where there is a settlement, MAS may, where it is appropriate, disclose the fact of the settlement and a brief description of the transgression. However, it would not be in the public interest for MAS to disclose its investigative methods, the results of its investigations and the source of its information. No prosecution or investigative authority does that. As a parallel, criminal authorities do not disclose the evidence that they uncover in the course of investigations to facilitate civil claims. Mrs Lim Hwee Hua talked about the disclosure-based regime and asked about fair disclosure, and to what extent we require fair disclosure as part of this regime. The SF Bill requires listed companies to disclose information required by the rules of the Exchange on a continuous basis. The Exchange has a system in place to ensure prompt and wide dissemination of such information to the public. Listed companies issue public announcements via MASNet which is a financial network connecting listed companies, SGX, banks, financial institutions as well as news agencies. Such announcements will be uploaded simultaneously onto SGX's website, which is fully accessible to the public at no charge. These arrangements ensure that the public and all market participants have equal and immediate access to material information disclosed by listed companies. Mrs Lim also asked about investor education.”
“The civil remedies have always been intended to constitute an independent action. In out-of-court settlements - they occur, they are not unusual - it is a practice of securities regulators in other financial centres. MAS will exercise any discretion it has to enter into a settlement judiciously, having regard to all the facts and circumstances of the case and the seriousness of the transgression. MAS will have to obtain the consent of the Attorney-General, and in exercising its discretion, MAS will take into account the impact of that settlement on civil claims. But that factor in itself, the possibility that there are other civil claims, cannot determine whether or not an out-of-court settlement is entered. Civil compensation is not barred by an out-of-court settlement with the Authority, under clause 232(5) of the Bill. Even where there is an out-of-court settlement, the claimants of civil compensation are not worse off than plaintiffs in other types of civil claims. Because, even if MAS settles out of court, it does not stop other plaintiffs from pursuing their own claims independently. Nor are these plaintiffs worse off than claimants in situations in which neither criminal nor civil penalty proceedings are commenced. Under the rules of court which will be promulgated under the Securities and Futures Bill, claimants will have available to them discovery and interrogatories. However, we do not think that it is desirable nor is it practicable to set guidelines as to the types of cases that the Authority should not settle.”
“It should be noted that, in fact, our IPO fees in Singapore are much lower than IPO fees in many other countries. For example, in the US, to list a company, the underwriting fees alone will amount to 7% of the funds raised. So a million dollars is a lot if you are a small company, but that is the expense which is involved going through the processes. To keep the fund raising cost down, the Bill provides for certain exemptions from the prospectus requirements. For example, when securities are being offered to institutional or sophisticated investors, a company would not be required to prepare a prospectus. Mr Ong also asked about civil actions - what will happen if MAS decides to settle a civil action instead of going to court? Our intent when we introduced the civil penalties and civil remedies for insider trading in the Securities Industry (Amendment) Act last year, we wanted the civil remedies to be filed as an independent course of action by investors who had traded contemporaneously with the defendant. We have applied the same approach in this Bill. We have not changed the approach. When a civil fine action is initiated by MAS or where criminal prosecution is commenced against the defendant, the civil proceedings will be stayed. When a defendant is eventually convicted in a criminal proceeding or found liable to pay a civil penalty in a civil action initiated by MAS, clause 236 allows contemporaneous investors to ride on the coat-tail of such criminal proceedings or of civil fine action. This is because it would be a waste of resources for a court to rehear the entire action for the civil action based on the same set of facts. So you have to see clauses 234 and 236 of the Bill in that context.”
“I think, in principle, we have to move to a disclosure-based regime. The old regime where the authorities exercise merit supervision and guided what companies were fit to be listed and what companies really should not be allowed to raise funds because it is too dangerous, is not an approach which we can sustain. So we have to go forward and we have to derive it. And if, in the process of working the disclosure regime, we run into difficulties, we have to overcome those difficulties. One of the uncertainties which Mr Ong raised was that when an exposure copy of a prospectus is posted, there will be unreasonable requests for information. This will really be up to MAS to administer, and MAS will have to be firm in deciding what information is needed. It is not an unprecedented arrangement. The Australians have a very similar scheme, and it has worked for them. I think we can make it work for us. As for the new corporate finance provisions making fund raising prohibitively expensive for SMEs, I would say, firstly, that the new provisions apply only to offers of securities to the public on the stock market. Many SMEs are more likely to raise private equity from venture capital firms, business angels and family friends. It is not our intention to make things onerous for them. In fact, we have a committee presently led by the private sector on company legislation and regulatory framework, which is studying ways to make fund raising easier and less costly for the SMEs. Mr Ong said that it will cost $1 million in fees in order to do an IPO for a listing on SGX. This probably includes both professional and underwriting fees. If you are making a public offer of unlisted securities, the cost should be much lower.”
“It can be outside the restricted period. But if you have some information, you know something is going to happen, you trade on it, you have violated the rule. And when we say it is information-connected rather than person-connected, we mean that it goes down the chain - I told you, he told the next person, and so on. It is information-connected. Whereas under the old person-connected rule, you had to have a direct contact. If it went to the next person, then we had to establish that there was some joint activity amongst those three persons in order to establish that this was an insider trading offence. So it is not whether you are a member of the family or not, or whether you are trading within the restricted period. It is to do with whether there was information which was passed from the insider to the tippee, and from the tippee onwards to another person. Next, Mr Ong Kian Min asked whether we will be setting up a Securities and Futures Commission. The answer is no, but we will be beefing up significantly MAS' department in charge of securities and futures. We have appointed a Deputy Managing Director in charge of this. It is a big function. In countries like Malaysia or Hong Kong, it is a separate entity. But in other countries like Britain and now Japan, the trend is to bring together the regulation under one consolidated financial supervisory authority. In Singapore, MAS has a consolidated supervisor. We have derived some economies of scale and it has worked well for us. So I think we will build up the securities and futures function within MAS, but it does need to be built up substantially. Next, Mr Ong asked whether the benefits of the disclosure-based regime will be realised in practice. This is something which we will have to work out.”
“You can pass the legislation, but to actually have the reach to enforce it and put things right, there will be holes in the armour. The extra-territorial jurisdiction provisions in clause 339 of the Bill will make clear that acts outside Singapore, which target Singapore investors, would be subject to our regulatory reach. Without such a clause, we may not even have a legal reach against operators of such businesses. Having created that legal reach, Part X of the SF Bill relates to provisions relating to assistance to foreign regulatory authorities. Apart from this, MAS has also entered into several memoranda of understanding with regulators from major financial centres. These MOUs and mutual assistance provisions facilitate the procuring of assistance from overseas regulators and would facilitate enforcement processes. It is not easy to do but you need a memorandum of understanding, and you need a cooperative regulator on the other side. In some cases, it will be helpful to have a mutual legal assistance treaty. [MLAT negotiations are multi-agency-led, coordinated by AGC.] We passed legislation to enable this a couple of years ago, and Singapore is in the process of negotiating several such mutual legal assistance treaties, although none of them are ready yet. Thirdly, Mr Leong Horn Kee asked about insider trading - how the information-connected approach works, and what happens to the person-connected criterion, eg, trading during a restricted period [in SGX-ST's Best Practices Guide on Dealing in Securities] by relatives of a person. First, may I explain that whether or not a trade violates the insider trading rules does not depend on the restriction period. It depends on whether or not you have sensitive inside information at the time of trading.”
“Nonetheless, to mitigate any potential conflicts arising from SGX's self-listing, MAS has assumed the role of listing authority for SGX's own listing, conducts surveillance of trading in its shares and has the power to issue directives to SGX to resolve any conflict of interest arising from its self-listing. At the same time, MAS has defined more clearly its regulatory relationship with SGX. As the statutory regulator, MAS will administer the corpus of laws regulating the capital markets. It will also have oversight over SGX's regulatory functions to assure that SGX is performing its regulatory functions competently and responsibly, and that there are no gaps in the overall regulatory framework. It inspects SGX. It carries out regulatory oversight of SGX's listing and business rules, and it conducts market surveillance. SGX retains the front-line responsibility of regulating the securities and futures markets and its market participants, and ensuring compliance with its rules. SGX has also appointed a Conflicts Committee to deal with issues of potential conflicts of interest, with MAS as the approving authority for the composition of the Committee. These were issues which were largely addressed in the Exchanges (Demutualisation and Merger) Act which was passed in 1999, when SGX was demutualised. This Act does not change the situation because we have just imported those sections from the Exchanges (Demutualisation and Merger) Act into the new SF Bill. Secondly, Mr Leong asked about enforcement of extra-territorial jurisdiction, given that the players are overseas, and Mr Sin Boon Ann also highlighted this problem. They are right. It is not straightforward.”
“One would expect that under the regime, particularly now that the disclosure obligation is required by statute, there is a likelihood of anxiety on the part of the listed entities to want to disclose, and disclose as much information as possible, in order not to run foul of the law. Sir, one has to have a certain balance in the whole regime. Arguably, it may be said that to require a complete disclosure of all material information without much guidance would be rather onerous on the listed entity itself. I would therefore like to ask the Deputy Prime Minister whether the Authority would help to give better guidance as to the type and quality of information to be disclosed in order to help the listed companies in the process. Apart from the above comments, Sir, I support the Bill. BG Lee Hsien Loong: Mr Speaker, Sir, I thank the Members who have supported the Bill. Let me address some of the points which they have raised. First, Mr Leong Horn Kee has asked about conflict of interest in SGX between MAS' and SGX's role. This is an issue which arose when we first demutualised SGX because, once it was demutualised and focused more on the bottomline, this may reduce SGX's commitment and resources to fulfil its regulatory responsibilities. MAS' view overall is that SGX's interests are more aligned than divergent with the public interest as represented by the users of the Exchange, because to sustain its business of success, SGX needs a fair, transparent and efficiently regulated market and a market which falls into bad reputation is not going to do SGX any good.”
“The implication of this, Sir, is that unit trusts may not have the benefit of a book entry system of trading. Accordingly, any transfer arguably would have to be governed by an instrument in writing and it would appear therefore, Sir, if unit trusts are cleared through the depository via a book entry system, it may be open to legal challenge. Sir, my concern is shared by some in the industry who seem to have taken the view that the present legislation does not cover unit trusts constituted in Singapore under the book entry system. And indeed in some prospectuses, the fact that the book entry system does not cover unit trusts has been raised as a risk factor in the prospectuses. I would like to ask the Deputy Prime Minister for a clarification in this regard. Fifthly, facilitating the development of a disclosure-based regime. The present Bill seeks to create a legal framework which seeks to facilitate the development of a disclosure-based capital market in Singapore. This development is in line with practices elsewhere, especially in the West which encourages participants in the industry to disclose as much information as possible in order to allow investors to make a more informed choice. In order to deal with this process, the Bill seeks to give legal teeth to the disclosure regime by making obligation to disclose a statutory one rather than one that is based on an obligation to the Exchange pursuant to the rules under the listing manual. While it is understandable why a regime of disclosure is encouraged in the marketplace, the drawback is often one of uncertainty on the part of the listed company.”
“Unfortunately, the Bill in its present form, does not clarify the ambiguities surrounding listed unit trusts in the Singapore Exchange. Under its present definition, securities means any unit in a collective investment scheme. However, in the definition of the collective investment scheme, it is expressly stated that the scheme does not include closed-end funds constituted in Singapore. Such closed-end funds, Sir, are funds that are non-redeemable. In the case of unit trusts, they are normally constituted in a manner which is non-redeemable and therefore are typically regarded as closed-end. It would appear therefore that any listed unit trust constituted in Singapore would not be considered a collective investment scheme under the Securities and Futures Bill. A listed unit trust will not be deemed as a security for the purposes of the Bill and if that was so, Sir, I think it would have grave ramification in relation to the listing of unit trusts in our Exchange. This is because, based on the book entry system, it does not appear that the provisions in our law relating to book entry securities apply to listed unit trusts. Presently, section 130G of the Companies Act provides that a transfer of securities by the depository by way of book entry to the depositor under the Act shall be valid and shall not be challenged in any court of law on the ground that the transfer is not accompanied by an appropriate instrument of transfer or that the transfer was not made in writing. This is a provision, Sir, to deal with any doubt that may arise under the Civil Law Act which requires such transfers ordinarily to be made in writing. Under the Companies Act, the definition of securities does not appear to include unit trusts as well.”
“Clause 243(3)(c) additionally seems to suggest that the person making the offer of shares or debentures, if the person controls the corporation whose shares and debentures underlie the offer of invitation, must provide information on assets, liabilities, profits, losses and financial position in respect of that corporation. Typically, in a prospectus, information on a group is provided on a consolidated basis. If, as the provision seems to suggest, the listing company is now required to set up details of individual companies in the group, then I am afraid that the prospectus may get rather unwieldy and cumbersome. This may not serve any better purpose than a consolidated group account is now able to provide and, in this regard, I would be grateful if the Deputy Prime Minister could also elaborate on this. Fourthly, collective investment schemes. The Securities and Futures Bill seeks to replace the term "interest other than shares" with collective investment schemes. Ostensibly, the approach seeks to plug a gap in our present legislation which on the surface does not include investments in actual property. For instance, it seems that investments in ostrich eggs are not covered by our current legislation because promoters of such investments were able to sell the actual commodity or property such as the egg and not the interest in the investment itself. Because it is an investment into the actual property, such schemes are not caught by our current legislation and hence it would seem that the new provisions in the Securities and Futures Bill would be able to deal with such a lacuna in law. This, Sir, is a development that is most welcomed indeed.”
“First of all, I was hoping that in migrating this provision, the Government would take the opportunity to spell out the activities that would constitute an offer to the public. This phrase "an offer to the public" is indeed, in many cases, key to the question of whether or not a prospectus is necessary. This is the question which has vexed many lawyers, with the consequence that some take the view that an offer of securities to five or 10 members of the public is not a public offer ostensibly because the size is not large enough. And in the other extreme, there are some who have taken the view that an offer of securities to even one member of the public, if that offer was indiscriminately made, would constitute a public offer. Very often, a judgement call would have to be made by the offerer or the professional adviser on whether or not a particular offer, when made, is made to the public. Even until recently, the industry was not even sure whether or not shares of the employees constitute an offer to the public. Sir, it may be unfair to place such a responsibility on offerers and professional advisers to make such a judgement call. I believe our policy would be better served if legislation can perhaps provide clearer guidelines as to what constitute an offer to the public. At this moment, Sir, the Bill does not offer any guideline and I would appreciate it if the Deputy Prime Minister can give us a clarification on this point. Clause 243 sets out broadly the content requirements of prospectuses.”
“What this actually means is that a person holding a capital market licence can engage in any of these activities provided he is suitably qualified. For the intermediaries and professionals engaged in capital market services, this is indeed good news as they no longer have to chase up different legislation to get the necessary permits. My concern here, Sir, is one of detail. I would like to ask the Deputy Prime Minister whether the application process for the licence could be made easier for the boutique firms or individuals who intend to provide e-services but who are not in the same league as the banks and financial institutions. I say this, Sir, because of late, we see in the industry, a fair number of ex-bankers or employees of financial institutions providing services, particularly in the area of corporate finance. No doubt these consultants and professionals would now have to be regulated under this Bill, I hope that the conditions to be set up by the Authority would not be so onerous as to effectively prevent them from undertaking this task. These consultants perform a very useful function by providing advice and services to the SMEs and to clients who may not have the wherewithal to engage the services of merchant bankers or other financial institutions. It would be helpful if the Minister could further elaborate on this issue and perhaps provide some assurance to the smaller players in the market. Thirdly, providing a comprehensive rule book of capital market activities. I do appreciate the intention on the part of the Government to migrate the fund-raising provision of the Companies Act into a more comprehensive rule book on capital market activities in Singapore. I have no comments on this migration, save for some particulars of details.”
“The question which I have is: does the law seek to catch the company or the agents operating behind the veil of these companies, and how would you enforce our laws against these people? This is the same point raised by my colleague, Mr Leong Horn Kee. I suppose, Sir, the way forward is to strengthen our international network by getting the cooperation of as many countries as possible in our bid to regulate these cross-border activities. The truth of the matter is that the veil of protection that we seek to give ourselves through legislation is bound to be punctured with holes as foreign operators can operate almost with impunity, notwithstanding provisions in our legislation that say otherwise. Unless we get the cooperation of the other countries, I doubt very much if the cross-border provisions in the Bill are going to work effectively. In this regard, I would like to ask the Deputy Prime Minister whether we are negotiating with other countries and, if so, how many, to deal with these issues, and whether we ought to promote an international legal framework to regulate these activities. Next, the question of a single licensing framework for securities and market intermediaries. As proposed, a singular modular framework allows for a range of regulated activities that are better differentiated to accommodate the business needs of the intermediaries. Accordingly, market intermediaries would only be required to hold a single modular licence instead of multiple licences to engage in the activities listed in the Second Schedule. These activities set out in the Second Schedule include, for instance, dealing with securities, providing custodial services to securities, engaging in the business of advising on corporate finance, and so on and so forth.”
“What is critical is that these alternative trading systems can be cross-border in nature. The MAS recognises that increasingly, Singaporeans are beginning to trade on overseas exchanges and, as a consequence, there is a need to bring this new development into the fold of regulation. Apart from either approving these exchanges in which case, these exchanges would come under the entire gamut of laws in Singapore, or exempting these exchanges from the application of relevant legislation here, the Bill seeks to provide for extra-territorial reach in our legislation in order to regulate these exchanges that do not operate within our jurisdiction. In this regard, the Bill deals with the situation by providing that if the act was partly committed in Singapore and partly committed outside Singapore, or if that act, committed outside Singapore, has a substantial and reasonably foreseeable effect in Singapore, and if that act is an offence if it is committed in Singapore, that person who committed the act would be guilty of an offence. Sir, while I appreciate the policy intent behind the extra-territorial reach of the Bill, I would say that the clause in its present form is weak. First, the Bill is not clear as to the extent, whether partial or otherwise, to which it must be committed in Singapore, or the extent to which it must go before it has a substantial effect in Singapore. I suppose this should be left to the courts, although I think it would help if legislation could provide some guidance here. Secondly, the Bill is not clear as to who the person should be. For instance, what happens if that person is a company incorporated say, in Vanuatu. In all probability, it would be a company that would be set up by the operator if they are intent on breaking the law here.”
“Mr Sin Boon Ann (Tampines): Mr Speaker, Sir, before I speak in support of the Bill, I wish to state at the outset that, as a solicitor, I may have an interest in the subject matter. The Bill before this House is a bold attempt by the Government in reforming our legislative framework to bring our capital market in line with the best practices of capital markets elsewhere. This reform is, indeed, part of our enduring effort to make Singapore the financial hub in the region. While the Bill is in part a consolidation of the various pieces of legislation, it has nonetheless taken the opportunity to introduce new changes and policies. These changes take into account, amongst other things, advances in technologies that allow for new and innovative methods of trading, convergence in the financial products and instruments and the way in which these products and instruments are sold or delivered by intermediaries. The Bill in itself is massive, running into 344 clauses, many of which are rather important in the way in which they underpin the capital market. One regret, Sir, is that there is not enough time between the last sitting and the present sitting for us to digest and analyse the Bill and its implications. I hope that there would be other occasions where, with the fullness of time, we will be able to digest and debate this Bill in a more comprehensive manner. Be that as it may, a number of comments and queries came to mind as I went through the Bill. First, the issue of overseas trading systems and exchanges which are targeted at Singaporeans. With the advent of the Internet, what has become obvious is that Singaporeans now have alternative trading systems. These services can provide trading platforms that do not fit traditional descriptions of market trading and dealing.”
“Sir, the shift from focusing on a "person-connected" to "information-connected" definition is significant and takes cognisance of the reality that price-sensitive information per se drives trading, without necessarily involving a connection with the company. This enlargement of the net is justifiable, but it also imposes greater discipline on those in fiduciary positions. Ultimately, without the need to prove any intent, a balance has to be struck so that it would not be too onerous for operators, especially non-executive directors. On a related note, the power to be vested in the MAS to bring an action in court against perpetrators of market misconduct, such as rigging and manipulation, is much welcome, especially by the retail investors. Once again, I would like to urge the DPM to strike a balance when executing this power, especially in terms of undertaking investigations. Thirdly, public education. Many of these provisions will pave the way for further development of our capital markets. However, I would like to urge the DPM to ensure that sufficient resources are devoted to public education so that the desired end-states are achieved. For example, many might mistakenly think that draft prospectuses are actual offers or that participating in a friendly scheme to make a killing out of an illiquid stock is being astute. Many changes arising from the reforms over the past few years have made visible improvements to the operation and integrity of our capital markets. I would like to seek the assurance of the DPM that market participants, especially the retail, individual investors, would be brought up to speed as best as we can. On that note, Sir, I support the Bill.”
“My colleague, Mr Ong Kian Min, has already elaborated on the preparedness of the investing public at large. At the same time, the SF Bill seeks to give legal teeth to the disclosure-based regime by making the continuous disclosure requirement a statutory one. Sir, at this juncture, I would like to raise the notion of "fair disclosure" even though it is not specifically mentioned in the Bill. I would like to ask the Deputy Prime Minister to comment on the Authority's stand on the extent to which fair disclosure would be a feature of this statutory requirement. Sir, let me elaborate. I would like to know how listed companies would be deemed to have complied with this statutory requirement. Would a filing with the Singapore Exchange, for example through MASNET, be sufficient? If so, the extent of dissemination to investors must be relevant in order for the primary objective to be met, hence my reference to the notion of fair disclosure. Sir, in the US, compliance with the spirit of Regulation Fair Disclosure takes the form of more press releases, more Form 8K filings and more webcasts of earning calls. This is accompanied by greater discomfort for listed companies when dealing with analysts and professional investors and a lot more care, if not paranoia, in providing earnings guidance, if at all. Sir, fair disclosure is a noble goal as it seeks to level the playing field for all investors, small retail and large institutions alike. However, in deciding on how compliance will be assessed, I seek the DPM's assurance that listed companies in Singapore would not find this onerous and be reduced to saying the very minimum, leading to an "equal misery" scenario for all investors. Secondly, market misconduct and insider trading.”
“Mr Speaker, Sir, I rise in support of the Bill, as the new legislation is a fitting enabling legal framework for all the structural reforms and initiatives that the Government has undertaken. The effort to consolidate the provisions in the various pieces of legislation is commendable and will go a long way towards facilitating further development of our capital markets. As a consequence of the amalgamation, the provisions cover a wide range of issues. I shall, therefore, limit my comments and questions to the following three areas, ie, the specific issues of developing a disclosure-based regime and market misconduct, and the general issue of public education. Firstly, developing a disclosure-based regime. The shift from a prescriptive to a disclosure-based approach is timely. It is consistent with the increasing emphasis on transparency and information disclosure. Essentially, market participants should no longer rely solely on prospectuses or offers that have made the grade, ie, endorsed by the stock exchange, to make their investment decisions. Instead, they should now carefully examine the substance of the offers. Whilst this may be a departure from the previous mindset that an approved public offer equals a good investment opportunity, it will cause investors to be more discriminating and savvy over time. Several provisions deal with enhancing market accountability and raising the standard of corporate disclosure. For example, draft prospectuses would be allowed exposure prior to a proposed offer although they may not be registered finally. Therefore, investors, especially non-institutional investors, need to comprehend the implications of the posting of such drafts.”
“Mr Speaker, Sir, I would like to ask the Minister a supplementary question in terms of commenting conceptually on the extent of pump priming that the Government would consider in the circumstances. BG George Yong-Boon Yeo: Mr Speaker, Sir, I do not think we are ready yet to announce the details of the package but conceptually there will be a modest amount of pump priming.”
“Mr Speaker, Sir, I have a question on the robustness of our economic strategy. Sir, going by the retrenchment trends during the previous and current crises, it would appear that the manufacturing sector, particularly electronics, is more vulnerable to regional cost and global demand factors than, say, the services sector. I would therefore like to ask the Minister, firstly, if there is a need to revisit the strategy of building the economy on the twin pillars of manufacturing and services, and, secondly, what really is our ability to diversify away from the huge reliance on electronics. BG George Yong-Boon Yeo: Mr Speaker, Sir, we continue to hold strongly the view that we must keep manufacturing as an important part of our economy and to have both manufacturing and services as twin engines of our growth. In the last economic crisis, without manufacturing, we would have been in deep trouble. This time round, both are down. Next time round, it may be the other way. So it is hard to say. The fact that we have both, gives us more diversification. But, of course, the world is changing, IT is changing the nature of industry. Within manufacturing, within electronics itself, we have to diversify and move into more knowledge-intensive activities the best way we can. And that is one reason why we are making very major investments in the bio-medical sciences. It will take many years before that sector bears fruit but, if we do not do the work now, there will be no harvest later. Our hope is to make that the fourth pillar of manufacturing in Singapore, after electronics, engineering and petrochemicals.”
“In due course, with convergence and the exciting possibilities of cross-marketing beyond financial institutions to overlapping customer segments, the question of selectively extending banking secrecy requirement has to be addressed. An appropriate balance has to be struck between reaping synergies and unbridled use of confidential customer information. Even the imposition of a non-disclosure obligation will have limited practical effects. Hence, any extension should be contemplated only on a selective basis. I would like to ask the Deputy Prime Minister what are the MAS' thoughts on the possible extension beyond financial institutions in these circumstances. On that note, Sir, I support the Banking (Amendment) Bill.”
“The question of enforcement comes to mind, as an owner-occupied property may turn into an investment during the tenure of the loan. How would the banks, and the MAS as supervisor, know when there is such a change? If left unchecked, would the real property exposure be understated over time? Thirdly, banking secrecy versus the convergence of retail businesses. Sir, here, the amendment seeks to grant banks more operational flexibility whilst guarding the confidentiality of customer information. This is significant on two counts, as the DPM has elaborated. Firstly, it will allow outsourcing of functions to intermediaries who may enjoy greater economies of scale than the banks themselves, for example, backroom processing of credit cards or the provision of non-sensitive banking services which does not involve data handling. This will enable banks to focus on what they do best in the whole value chain. Secondly, and more importantly, it will facilitate the extension of cross-marketing capabilities to promote financial products and services as outlined in the Sixth Schedule. Again, as banks cannot be experts across a wide spectrum, cross-marketing to help broaden consumer choice must be allowed as far as possible. This will take special significance on the Internet platform in the light of increasing customer demand for speedier processing. For example, in the area of e-payments, we read of Citigroup's use of the MSN portal or the emergence of PayPal, which is posing some competition to credit card companies like Visa and MasterCard. However, convergence will not be limited to the electronic medium and a one-stop banking-cum-services point may soon be the model for customer satisfaction.”
“Thus, the proposed flexibility for the MAS, in clause 12, to set bank-specific CAR above its relatively high 12% minimum, runs the risk of being seen as an over-kill unless the circumstances for such an imposition, such as the innovation of new but riskier activities, are well understood. Moreover, Sir, our local CAR standards must always be seen in the context of regional or even international competitiveness as well as the ambitions of Singapore banks to expand offshore. Imposing higher standards for Singapore banks may unwittingly limit the ability to compete meaningfully as their threshold returns would be much higher. However, as the intent behind the introduction of flexibility is a sound one, I would like to urge the MAS to constantly review its 12% minimum level with a view to lowering it to reward banks for good behaviour, that is, banks who are themselves using internal models to calculate risk so as to calibrate the amount of capital they must set aside. This, I believe, would be consistent with the spirit of the new Basle 2 framework. Secondly, property exposure. Sir, the changes outlined in clause 22 attempt to help minimise the contagion effect of a property market downturn through a more meaningful definition of property-exposed loans. Whilst the re-definition will effectively broaden the coverage to include loans to building and construction, the increase will be offset to a large extent by the exclusion of owner-occupied property loans. Hence, lending capacity should not be materially affected. Sir, this exclusion of owner-occupied property loans is well-founded and intuitively logical. But I note that it is a slight departure from the convention of attributing lower rates to mortgages in general, regardless of whether they are owner-occupied or not.”
“Mr Speaker, Sir, I rise to support the Banking (Amendment) Bill which seeks to effect changes to revised and new policies and measures. These will help position Singapore banks better in ever changing circumstances that will require and reward greater operational flexibility. At the same time, we should continue to have the assurance that banks meet minimum prudential limits in order to preserve the integrity of the Singapore banking system, something which we have painstakingly built up over the years. Sir, the changes cover a wide range of issues but I would like to limit my comments to the following three areas, namely, capital adequacy, property exposure and banking secrecy. Firstly, capital adequacy of banks. It is a well-known fact that unlike banks elsewhere which are found wanting during an economic downturn, Singapore banks are well-capitalised. In fact, for many years, the main grouse of institutional investors in banking stocks has been that Singapore banks are over-capitalised. Hence, their returns on capital would pale in comparison with those of comparable banks elsewhere. Sir, in recent years, capital efficiency has figured prominently and banks have sought other ways of funding their activities whilst reducing the capital base. Notwithstanding that, banks here still generally keep a capital adequacy ratio (CAR) well above the MAS' minimum of 12%, which is itself already higher than 8% imposed by the Bank of International Settlements (BIS) on all banks. According to published data, the average CAR of the top five locally owned banks ranging from 16% to 24% was 19% in year 2000.”