Richard Hu Tsu Tau
Singapore
“Sir, I think it is eminently fair, because the proposal really is for the Government to spend money to give shares to Singapore citizens. Either you agree or you do not agree. Or, if you agree, perhaps you consider the amounts insufficient or too much.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time". The purpose of this Bill is to make provision in accordance with Articles 148(2) and 148C(2) of the Constitution for additional expenditure in excess of the provisions authorised by the Supply Act, 2001.”
“I think the Prime Minister and DPM Lee have already explained it will be based on income levels, with people living in flats as a proxy. So there is no political content in it. It depends on the income level, whether you have served national service or whether you are an elderly person.”
“I really do not understand. I know you are arguing on technicality for which I agree that you may have a point. But, nevertheless, because it is a proposal to share Singapore's surpluses with the population, the distribution is not something which you can argue against.”
“As I said, the estimates will be available around mid-October. I do not think, at this time, I want to give a specific date when the second package will be announced, but it will be done as soon as practicable. IN-PRINCIPLE AGREEMENT WITH MALAYSIA ON OUTSTANDING BILATERAL ISSUES (Assessment) 4.”
“Mr Speaker, Sir, when the $2.2 billion off-Budget package was announced in July this year, we said that the Government would do more to assist Singaporeans if the global economic situation worsened in the coming months.”
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“The bankruptcy of the Baring group has had no impact on domestic financial institutions as they have no exposure to the Baring entities or companies. Although BFS has a large position in futures and options contracts on SIMEX, our futures exchange is not at risk as a result of the massive losses of the Baring group. This is because SIMEX, operating under the framework of the existing Futures Trading Act, has a comprehensive set of checks and controls to safeguard the financial integrity of the exchange and those of its futures broking members even if a major investor defaults on his transactions on the exchange. These safeguards are as follows: Firstly, any investor who transacts on SIMEX is required to place a margin deposit for every contract transacted. The margin deposit serves as a cushion of safety which SIMEX can use to offset any losses arising from the fluctuations in futures prices which the investor is unable to honour. SIMEX sets its margin deposits at levels which vary with the assessment of the volatility of the underlying market. Up to Friday, 24th February, 1995 the margin set was at 8%. This was raised to 15% on Monday, 27th February, 1995 and is currently lowered back down to 10% because of lower volatility. As futures prices are highly volatile, SIMEX computes the margin deposit requirements on a daily basis based on the market price of the contract at the end of the day. Secondly, under the Futures Trading Act, SIMEX requires its futures broking members to increase their capital whenever they have increased volumes of customer transactions.”
“We have already done it for drug trafficking and for other crimes, but we will also now consider whether this might not be extended to this type of crime. Finally, I would like to give the House a review of the Barings debacle. Members of this House would have heard that the Baring group, which is a long established financial institution in the United Kingdom, recently became bankrupt because of massive losses, reported to be in the region of o500 million, arising from derivatives transactions by one of its traders in Singapore. The trader concerned had accumulated a huge portfolio of futures and options contracts on SIMEX and various Japanese exchanges for its affiliated companies in Tokyo and London. As the Baring group was insolvent and cannot continue trading, it has applied for administration in the United Kingdom. The Baring group has three major business operations in Singapore, namely, a merchant bank, Baring Brothers & Company; a stockbroking company, Baring Securities (Singapore) Limited, which is an international member of the Stock Exchange of Singapore; and a futures broker, Baring Futures (Singapore) Pte Limited (BFS), which is a member of SIMEX. The merchant bank and the stockbroking company are financially solvent and have adequate financial resources to meet their obligations. The merchant bank has ceased entering into new business and will close down its operations. The stockbroking company is currently under the administration of the Stock Exchange of Singapore, which will oversee its operations to ensure the smooth winding down of its financial liabilities. BFS, which was one of the largest traders on SIMEX, has come under judicial management.”
“I thank Members for their contributions. I will deal with the individual questions first before commenting on the Barings crisis at the end. Dr Ow Chin Hock has asked a number of questions. I will take them individually. He has asked how many unregulated forex traders have been in business. MAS estimates there are between 30 and 40 such firms in operation. He also asked, when licences are refused by the MAS, whether the person involved will have a hearing. He will. In fact, if he is dissatisfied with the rejection, he can apply for a hearing and he will be told what are the reasons for the rejection. Dr Ow has also asked how the various sums on the fidelity fund are arrived at. They are basically proposed by SIMEX itself and they are initial sums which are subject to review. They look relatively small at this stage but, depending on actual market conditions, they could be increased in due course. Finally, he has asked whether the Futures Trading Act could be extended to cover the regulation of soft commodities. I would like to point out that there is in existence already a Commodities Futures Act which regulates rubber futures and it is proposed that coffee futures be covered by the same Act. So presumably all other soft commodities futures could be regulated by the same Act. Both Mr Chay Wai Chuen and Prof. Walter Woon have commented on the relatively low penalties under the Futures Trading Act, particularly in the light of the Barings debacle. We agree that these penalties require review and we will actively look at them. I would like to thank Prof. Woon particularly for his suggestion that the ill-gotten gains in these cases might be subject to confiscation.”
“To enhance protection of the interests of customers and in line with the requirement imposed by SIMEX on its members, the Bill proposes to introduce business conduct rules such as giving priority to customers' transactions over the firm's own transactions, and obtaining customers' consent for transactions where there is potential for conflict of interest. The Bill also proposes a technical amendment to the Finance Companies Act which was last amended in 1994. Under the last set of amendments, the definition of "director" in the Finance Companies Act was extended to include the immediate family members of a director under the provision where the directors of a finance company are responsible for losses arising from unsecured loans granted by the finance company to any of its directors and firms and corporations in which any of the directors has an interest, and any related firms and corporations of the finance company. However, this extension also had the unintended effect of making the family members of a director of the finance company liable for any losses incurred by the finance company in respect of such unsecured loans. As it is not the intention to impose such a liability on the family members of a director, the Bill proposes to exempt family members of a director from any liability in respect of losses arising from such unsecured loans. The other proposed amendments to the Futures Trading Act are house-keeping in nature, and pertain mainly to the definition of terms and the imposition of penalties for breaches of regulations. They do not warrant any special mention in addition to what has been stated in reference to them in the Explanatory Statement. Sir, I beg to move. Question proposed.”
“To cater to this development, the Bill will extend the scope of activities of a futures trading adviser to include the management of customers' funds, whether on a discretionary or non-discretionary basis, for investment in financial futures or foreign exchange transactions. Administrative Amendments The Bill also proposes to put into legal effect certain administrative requirements to strengthen the regulation of the financial futures industry. These are as follows: (a) The Act currently requires futures brokers to meet minimum capital adequacy requirements. However, the Act does not require them to notify MAS of any failure to meet such statutory requirements or to rectify non-compliance. The Bill will require futures brokers to notify MAS of any failure to meet statutory financial obligations. This will allow MAS to impose prudential requirements to protect the interests of customers. (b) A futures exchange is required to obtain approval from the Authority before listing any new futures contract. (c) The Act currently requires auditors of futures brokers to report to MAS any findings of non-compliance of the provisions of the Act. The Bill proposes that MAS be granted powers to remove any external auditor who fails to carry out this duty. (d) The Act currently requires futures brokers to place customer's funds in a trust account. This requirement to segregate customers' monies, however, only applies to monies received in connection with futures transactions. Since futures brokers may also receive customer funds for trading in other financial instruments, the Bill proposes to extend the segregation requirement to include such customer funds. (e) Currently, the Act does not stipulate any business conduct rules governing futures brokers dealings with their customers.”
“Firstly, the Bill will exempt banks and merchant banks from the licensing requirements for leveraged foreign exchange trading activities since they are already subject to such regulation under the Banking Act. Secondly, as the main purpose of regulating leveraged foreign exchange trading is to protect unsophisticated investors, the Bill will expressly exempt the licensing requirements for persons and their employees who offer leveraged foreign exchange trading facilities only to accredited investors. Thirdly, the Bill will also exempt persons and their employees from the licensing requirement for trading in financial futures and leveraged foreign exchange for their related corporation or family members. There are no investor protection considerations in such transactions as the customer and the intermediary are related parties. Fourthly, in order to allow greater flexibility for stockbroking companies and fund managers to use the futures market and the foreign exchange market to hedge their customers' portfolio of securities, the Bill will waive the licensing requirements for such persons provided that their trading in such instruments is for the purpose of hedging the investment risk of a portfolio of securities. Fifthly, under the Act, a futures trading adviser is currently only allowed to advise customers and publish reports and analyses concerning futures trading and futures markets. However, in recent years, there has been growing interest by fund managers to invest customers' funds in financial futures contracts and foreign currencies in addition to equities and debt securities.”
“This will ensure that only individuals with the requisite experience, qualification and integrity are permitted to participate in the financial futures industry. Furthermore, as the scope of activities of a futures trading adviser has also been expanded to include the management of customers' funds, futures trading adviser's licence will only be granted to corporations. Individuals will have to incorporate a company to conduct such business and not as a sole proprietor. Companies have to meet stricter prudential requirements on internal controls and external audit. Any person affected by the change in the licensing framework will have a grace period of six months to apply to the MAS for a licence upon the coming into force of the Act. The Act currently allows MAS to refuse a licence if an applicant is found to have committed a criminal offence or is a bankrupt. To ensure high standards of professionalism and integrity, the Bill proposes to spell out other qualitative criteria required for licensing. This will include the applicant's character and integrity, as well as his experience and expertise in such activities. Licences can be refused in Australia and Hong Kong on similar grounds. Liberalisation of Certain Provisions While the Bill seeks to update prudential requirements to enhance the integrity of the financial futures industry, it also proposes amendments to reduce the regulatory burden in areas which do not affect the soundness of the industry. In response to feedback from the industry, the MAS has hence proposed that certain provisions of the Futures Trading Act be liberalised.”
“SIMEX is also developing its own electronic trading system in order to extend its trading hours. Since electronic dealing systems would effectively establish markets for the trading of financial futures, the conduct of futures trading via such electronic means will need to be properly regulated. The next group of amendments sets out the provisions for requiring institutions licensed under the Futures Trading Act to assist in the investigation of drug money laundering offences. The Drug Trafficking (Confiscation of Benefits) Act allows the investigation, tracing, freezing and seizure of proceeds from drug trafficking and provides legal assistance to foreign enforcement agencies on fulfilment of certain conditions. To ensure that assistance is provided only for genuine drug trafficking investigations, a prima facie case of drug trafficking has to be established. Such assistance would be provided only if it is not contrary to our national interests. The amendment to the Futures Trading Act to facilitate drug trafficking investigations is similar to the recent amendments to the Banking Act and the Finance Companies Act for the same purpose. Fine-tuning of Licensing Requirements As the scope of activities of futures brokers and futures trading advisers has expanded, licensing requirements have to be reviewed to ensure effective protection of the interests of customers. Currently, directors, officers and employees of a futures broker are not required to be licensed as futures broker's representatives. As the coverage of the Act has been expanded to include regulation of leveraged foreign exchange trading, it is necessary to require such persons to be licensed as futures broker's representatives.”
“Accredited investors are individuals with personal net worth of at least $5 million and corporations with net assets of at least $10 million, or their equivalent in foreign currencies; (b) A person who engages in futures trading or leveraged foreign exchange trading with a related corporation or a related person, and (c) A dealer or investment adviser licensed under the Securities Industry Act or any person exempt from holding such licence who engages in futures trading or leveraged foreign exchange trading for the purpose of hedging a portfolio of securities. Establishment of Fidelity Fund by SIMEX Because of growing interest from retail investors to trade in SIMEX futures contracts, additional safeguards to protect their interests are needed. The Bill therefore requires SIMEX to establish a Fidelity Fund, similar in structure to the Stock Exchange of Singapore's fidelity fund, to compensate investors for losses arising from defalcation by SIMEX members. The Fund will have the following main features: (a) the initial size of the Fund will be $5 million; (b) SIMEX will contribute 10% of its annual profit to the Fund; (c) the Fund will pay a maximum compensation of $100,000 or 75% of the actual loss to a retail investor; and (d) the maximum payout on defalcation claims will be $500,000. Extending Scope of Futures Trading Act to Regulate Electronic Trading Systems When the Futures Trading Act was enacted in 1986, trading was mainly in exchanges which used an open outcry system. In recent years, electronic systems utilizing terminals to trade futures contracts have been developed. A number of international futures exchanges have expressed interest in cooperating with SIMEX to install electronic trading systems to trade their products in Singapore.”
“Extending the Scope of the Futures Trading Act to Regulate Leveraged Foreign Exchange Trading Under the proposed amendments to this Bill, persons who offer to the public leveraged foreign exchange trading facilities, investment advice to customers for trading in foreign exchange, or manage customer's funds on a discretionary or non-discretionary basis for investment in foreign exchange markets, would need to be licensed by the MAS. Upon licensing, persons offering such facilities would be subject to capital adequacy standards, business conduct rules and prudential requirements. It should be noted that the Bill only seeks to regulate the trading of foreign exchange on a margin or leveraged basis. It does not regulate outright foreign exchange transactions involving the exchange of one currency for another, which does not give rise to prudential concerns. Similar legislation has also been introduced by Hong Kong to stamp out trading malpractices in its leveraged foreign exchange trading industry. As the main purpose of regulating leveraged foreign exchange trading is to protect unsophisticated members of the public, the Bill will exempt the licensing requirements for persons who offer such facilities to certain classes of investors. These are as follows: (a) A person who engages in leveraged foreign exchange trading only with accredited investors.”
“Leveraged foreign exchange trading is the buying and selling of foreign exchange on a margin basis and hence it is similar to futures trading which is also conducted on a margin basis. The investor needs only put up a margin of 3% to 5% of the value of foreign exchange transacted. Such leverage means that the investor's potential for both profit and loss will be large relative to his initial investment. Leveraged foreign exchange trading is hence a risky business. Currently, leveraged foreign exchange trading is not subject to any regulation. Any person can incorporate a company to offer such facilities to members of the public. The result has been a proliferation of such firms which use aggressive marketing and promises of high investment returns to entice unwary members of the public to trade in the foreign exchange market. MAS has received many complaints from customers on losses incurred in trading through such firms. One common complaint is that such firms do not explain the risks involved in foreign exchange trading or disclose that customers could not only lose their entire margins, but also be liable for further unspecified losses. Another complaint is that such firms had deliberately churned customers' accounts, by trading unnecessarily to generate commission income. Since leveraged foreign exchange trading and futures trading are similar in nature, leveraged foreign exchange trading can and should be regulated under the Futures Trading Act. With the foregoing in mind, I will now deal with the main provisions of the Bill. The Bill may be broadly divided into six segments and I will now elaborate on each of these segments.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The Futures Trading Act was introduced in 1986 to foster the sound development of the financial futures industry. In 1984, the Singapore International Monetary Exchange, or SIMEX, was inaugurated to provide international investors with facilities to transact in financial futures. A tie-up with the Chicago Mercantile Exchange, or CME, in the form of a mutual offset linkage was established. The linkage would enable the futures positions entered on one exchange to be transferred to the other. SIMEX was able to establish the mutual offset linkage with CME because of the confidence the CME and its regulator, the US Commodities Futures Trading Commission, had of Singapore's commitment to establish and enforce a sound legislative framework to regulate futures trading. In the past decade, the Futures Trading Act clearly served its purpose. The global stock market crash of October 1987 presented a major test. Prices of stock index futures fell sharply in tandem with the stock market, creating chaos in major futures exchanges, and led to the closure of a major futures exchange in Asia. SIMEX weathered the crisis unscathed, due in no small part to the presence of our futures trading legislation. After a decade of operation, it has become necessary to review the Futures Trading Act to ensure its continued effectiveness. Global financial futures markets have grown very rapidly in the past 10 years. During the five years from 1990 to 1994, the volume of futures and options contracts traded on the top 10 exchanges in the world more than doubled from 450 million to 1.1 billion contracts. It is also timely to review the Futures Trading Act because of the growth of leveraged foreign exchange trading in Singapore.”
“Now, Sir. I beg to move, "That the Bill be now read a Third time." Mr Speaker: The Question is, "That the Bill be now read a Third time." A Division will now be taken to ascertain that the Third Reading of the Bill is supported by the votes of not less than two-thirds of the total number of Members of Parliament, which is 54 Members, pursuant to Article 5(2) of the Constitution. The Clerk will ring the Division Bells. Question put, "That the Bill be now read a Third time." Division taken: Ayes, 72; No, Nil; Abstention, Nil. Ayes Ayes (cont.) Abdullah Tarmugi Loh Meng See Beng Kian Lam, Arthur Low Seow Chay Chandra Das, S Low Thia Khiang Chay Wai Chuen Mah Bow Tan Chen, Bernard Mohamad Maidin B P M Chen Koon Lap, Kenneth Ong Chit Chung Chen Seow Phun, John Othman bin Haron Cheo Chai Chen Eusofe Chew Heng Ching Ow Chin Hock Chin Harn Tong Peh Chin Hua Chng Hee Kok Sidek bin Saniff Ch'ng Jit Koon Sinnakaruppan, R Chong, Charles Sung, Peter Choo Wee Khiang Tan Cheng Bock Davinder Singh Tan Keng Yam, Tony Dhanabalan, S Tan Soo Khoon Goh Chok Tong Teo Chee Hean Goh Choon Kang Teo Chong Tee Harun bin A Ghani Vasoo, S Heng Chiang Meng Wan Soon Bee Ho Kah Leong Wang Kai Yuen Ho Peng Kee Wong, Aline K Ho Tat Kin Wong Kan Seng Hu Tsu Tau, Richard Wong Kwei Cheong Ibrahim bin Othman Yao Chih, Matthias Jayakumar, S Yap Giau Cheng, Eugene Ker Sin Tze Yatiman Yusof Koh Lip Lin Yeo Cheow Tong Koo Tsai Kee Yeo Ning Hong Lau Ping Sum Yeo Toon Chia Lee Boon Yang Yeo Yong-Boon, George Lee Hsien Loong Yu-Foo Yee Shoon Lee Kuan Yew Zulkifli bin Mohammed Lee Yiok Seng Lee Yock Suan Lew Syn Pau No Lim Boon Heng Nil Lim Chun Leng, Michael Lim Hng Kiang Abstention Ling How Doong Nil”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." This Bill seeks to amend the Constitution of the Republic of Singapore consequential to the Pension Fund being established. Article 114 of the Constitution provides that pensions, gratuities and other like allowances granted for public service shall be charged on and paid out of the Consolidated Fund. Article 114 is to be repealed and re-enacted with amendments to provide that pensions, gratuities and other like allowances granted for public service shall be first charged on and paid out of the Pension Fund and, if that Fund is deficient, the Consolidated Fund. Sir, I beg to move.”
“Sir, the total liability - in fact, I mentioned this - stands at $9.61 billion, and it will be transferred from the Consolidated Fund in a single lump sum. The amount will be reviewed periodically, every five years, to make the necessary adjustments, and it will be done on an actuarial basis. 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. - [Dr Richard Hu Tsu Tau]. Bill considered in Committee; reported without amendment; read a Third time and passed. CONSTITUTION OF THE REPUBLIC OF SINGAPORE (AMENDMENT) BILL Order for Second Reading read.”
“The Pension Fund is to be established on 1st April 1995, to coincide with the new financial year. To meet the service and medical liabilities of both pensioners and serving pensionable officers prior to 1st April 1995, a sum of $9.61 billion would be appropriated from the Consolidated Fund and paid into the Pension Fund. The provision for this transfer has been included in the FY95 Supply Bill which has just been tabled in Parliament this afternoon. In addition, an annual contribution amounting to 17% of pensionable emoluments has to be made in recognition of the on-going service liabilities of serving pensionable officers from 1st April 1995 onwards. Beginning in the new financial year, this contribution, estimated at $125 million, would henceforth form part of the Expenditure on Manpower. Against this, Pensions expenditure will no longer appear as part of Operating Expenditure in the annual Government budget. These changes have been incorporated in the FY95 Supply Bill. Sir, I beg to move. Question proposed.”
“An examination of the liabilities and balances in the Fund will be carried out not less than once every five years. However, should the Government decide to improve pension terms or add new ones or include new groups of pensionable officers, the Bill requires an examination of the Fund to be carried out to determine the additional liabilities and corresponding funding requirements. At the end of such examination, a report of the Pension Fund status and balances would be submitted to Parliament. Article 114 of the Constitution provides that pensions, gratuities and other like allowances granted for public service shall be charged on and paid out of the Consolidated Fund. Such protection of pension payments under the Constitution shall continue to be preserved in the Bill. In the event that the Pension Fund has insufficient balances to meet its liabilities under written law, the Bill provides for payments of pensions, gratuities or allowances to be charged on and paid out of the Consolidated Fund. A consequential amendment to Article 114 of the Constitution for this purpose is taken up in a separate Bill, the Constitution of the Republic of Singapore (Amendment) Bill 1995. The Pension Fund Bill 1995 also seeks to make consequential amendments to the Civil Defence Act, the Civil List and Pension Act, the Parliamentary Pensions Act, the Pensions Act, the Personal Injuries (Emergency Provisions) Act, the Singapore Armed Forces Act and the Widows' and Orphans' Pension Act to provide for the charging on the Pension Fund of pensions, gratuities, compensation and allowances payable under those Acts. The Bill also contains provisions for the accounting and audit of the Pension Fund on an annual basis.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." This Bill seeks to establish a new Government Fund called the Pension Fund. The Fund would meet payments of pensions, gratuities, allowances and other retirement benefits (including medical benefits) of the President, political office-holders, Members of Parliament and public officers (both civilian and military) on their retirement, discharge or death. The setting up of the Pension Fund is in line with Government's desire to recognise pensions as a future liability and to make explicit financial provisions for this. Such an arrangement should reassure pensioners and pensionable public officers that their pensions would continue to be paid. It would at the same time relieve future taxpayers of the burden of paying for the services rendered by current and past public officers. For administrative expediency, the Fund would also meet some payments that are not strictly in the nature of retirement benefits but which are currently paid from the Pensions Head of Expenditure and which can, for the same reason, be paid from the Pension Fund. These are insignificant compared to pension payments and include compensation payments for injuries sustained in service, top-up CPF for officers converting from pensionable service to full CPF, service gratuities, top-up CPF under the Special Resignation Scheme, amongst others. The Bill does not include any payment that is not already currently being made from the Pensions Head. The Bill provides for moneys to be appropriated from the Consolidated Fund and paid into the Pension Fund to enable it to meet its liabilities. These liabilities would be determined on an actuarial basis so that the Pension Fund can be self-sustaining.”
“Mr Speaker, Sir, I beg to move, "That Parliament doth agree with the Committee on the said resolutions." Question put, and agreed to. Resolutions accordingly agreed to. PENSION FUND BILL Order for Second Reading read.”
“I suggest that the Member submit a Question because I am not quite sure exactly what he means. CENTRAL PROVIDENT FUND (Withdrawal age at 55 years) 3. Mrs Yu-Foo Yee Shoon asked the Minister for Labour if he will confirm that the extension of the retirement age will not affect the Central Provident Fund withdrawal age of 55 years.”
“No, that is a question of definition. Effective interest rate is what you actually pay. Whether or not you know it is a secondary problem.”
“I do not quite understand the issue. The effective interest rate is what they are charging you. But whether you know it is a different thing. I am not sure exactly what the Member means.”
“It is not a question of difficulty. It is whether it is necessary.”
“We have regulation here. But we should not over-regulate. It is not that we should not have any regulation whatsoever.”
“They are now required to do so. I think that impression is being corrected. In this case, I think over-regulation is uncalled for.”
“I am not aware of what directive has been ignored.”
“Yes, of course, they are making profits, otherwise they would not be doing business. But the protection is already provided by MAS and I think consumers should not always rely on the regulatory authority to protect their interests. The best course is to restrain their expenditure wherever they can.”
“The conditions for issuance of credit cards have already been tightened up and, in fact, it has begun to slow down the rate of card issuance. As I have explained, 24% may sound a lot but, in fact, the nominal charges which the bank levies are very low. If you do not want to pay the 24%, you can easily adjust it by paying up on due date. Dr Kanwaljit Soin: Sir, would the Minister agree that credit card companies are making money from the fees that they charge the companies which subscribe to them? And would the Minister agree that the ordinary consumers need some protection and they are looking to the MAS for that?”
“Mr Speaker, Sir, there are presently 12 credit and charge card issuers in Singapore of which 10 are banks. As Singapore is a free market economy, the Monetary Authority of Singapore does not regulate interest rates charged by financial institutions, as I have said earlier, including banks and credit and charge card companies, for the granting of credit facilities. These are commercial decisions made entirely by the financial institutions based on market competition. It should be noted that cardholders are not obliged to pay interest on their card spending. Interest is charged by card issuers only if full payment is not made by cardholders by due date. Credit and charge cardholders who do not wish to incur interest charges on their card spending should pay up their dues promptly to the card issuer by due date. The 24% interest rate charged by card issuers is stated in the terms and conditions of the credit/charge card and is therefore known to cardholders. Such rate of interest is also imposed on credit/charge card debts in many other countries. The relatively high rate of interest charged by credit and charge card issuers is to compensate them for the credit risk which they undertake and the relatively low annual fees which they impose for the convenience of making purchases via the use of credit/charge card. However, in order to highlight to cardholders the interest charges which they will have to bear if they do not pay their credit/charge card debts promptly, MAS will be requiring card issuers to print more prominently on their billing statement the interest rates which the card issuers would charge cardholders for failing to pay their credit/charge card spending by due date and the manner in which such charges would be imposed.”
“The Member may also wish to know that the Monetary Authority of Singapore has recently issued a circular to all credit and charge card issuers in Singapore requiring them to print prominently on their billing statement the interest rates and charges which the card issuer would impose on cardholders for failing to pay their credit/charge card bills in full by due date and the manner in which such charges would be imposed. CREDIT CARD COMPANIES (Interest rate on roll over balances) 2. Dr Kanwaljit Soin asked the Minister for Finance on what basis the Monetary Authority of Singapore allows credit card companies to charge 24% interest rate per annum on the roll over balances of their clients when banks only charge an annual interest rate of 6-9% for overdrafts.”
“Mr Speaker, Sir, in a free market such as Singapore, the charges and interest rates imposed by financial institutions for services rendered or credit facilities granted are commercial decisions determined by financial institutions themselves. Similarly, the Monetary Authority of Singapore (MAS) generally does not issue guidelines to banks with regard to their commercial banking practices as these should also be determined by the banks themselves. Allowing banks to determine their own charges and practices could help increase competition and benefit consumers. For example, in 1975, the cartel system of fixing deposit interest rates among banks was abolished. This benefited consumers as banks thereafter compete for deposits by offering more attractive interest rates. However, in order to ensure that customers know the effective rate of interest charged by financial institutions, the Association of Banks in Singapore (ABS) and the Finance Houses Association of Singapore (FHAS) have, at the encouragement of MAS, provided for in their respective codes of conduct that their members should disclose the effective rather than the nominal rate of interest rate payable by customers wherever appropriate. The ABS and FHAS codes of conduct came into effect in June 1993 and May 1994, respectively. Banks and finance companies should therefore already be informing their customers of the effective rate of interest. Nevertheless, the Monetary Authority of Singapore will ask the associations to remind their members of the provision and to comply with it, and will monitor the situation closely.”
“The number of persons who have been allowed a tax deduction for maintaining a disabled person is as follows: Table 1 Year of Assessment 1992 1993 1994 Disabled spouse 258 346 303 Disabled children 2,462 2,715 2,313 Disabled siblings 4,160 4,660 4,359 _____ _____ _____ Total 6,880 7,721 6,975 _____ _____ _____ The figures in Table 1 do not include those who have been allowed a tax deduction for maintaining a disabled parent or grandparent. This is because the aged parent relief is given based on either disability or age or both. The Inland Revenue Authority of Singapore is unable to separate out only those who maintained a disabled parent or grandparent. For information, the number of persons who have been allowed a tax deduction for maintaining a parent or grandparent is as follows: Table 2 Year of Assessment 1992 1993 1994 Parent or grandparent 145,861 157,875 137,490 PASTORAL CARE IN SCHOOLS 7. Dr Kanwaljit Soin asked the Minister for Education what percentage of schools have pastoral care services and whether his Ministry will consider extending this care service to all schools.”
“The deduction for expenditure on building modifications to cater for the disabled was introduced in 1990. To-date, there has been no application for the deduction. TAX REBATES FOR SUPPORTING DISABLED PERSONS 6. Dr Kanwaljit Soin asked the Minister for Finance how many taxpayers claimed a tax rebate each year from 1992 to 1994 for supporting a disabled person.”
“The total amount of GST collected from April to December 1994 is $1.11 billion. However, this figure pertains only to gross collection less any refunds made up to December 1994. It does not include $62.9 million worth of claims for input tax refunds, which are being processed by IRAS. After allowing for this potential refund amount of $62.9 million, the estimated GST revenue is $1.047 billion. The GST collection for 1994 has already exceeded the estimate of $960 million quoted in the 1994 Budget Statement, because of unexpected high economic growth. The $960 million was estimated based on the Private Consumption Expenditure (PCE) figures of 1992, adjusted to 1993 and 1994 levels. The estimate assumed nominal GDP growth rates of 7.5% for 1993 and 8% for 1994. Actual nominal growth rate in 1993 turned out to be much higher at 13%, while Ministry of Trade and Industry has projected nominal growth in 1994 to be around 14 - 15%. On the other side of the coin, the value of the GST rebate/offset package has also increased substantially beyond the $1.2 billion estimate announced in the 1994 Budget Statement. This is because the reductions in personal and corporate income taxes are highly buoyant, that is, their value increases sharply with higher GDP growth. The Government remains committed to implementing GST in a revenue negative manner in the short run, and in a revenue neutral manner in the long run. TAX REBATES FOR BUILDING MODIFICATION TO CATER FOR DISABLED 5. Dr Kanwaljit Soin asked the Minister for Finance how many organisations enjoyed a one-off deduction from their income for the years 1992 to 1994 for building modifications to cater for the disabled.”
“The court must be satisfied with the conditions before it makes an order. 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. - [Dr Richard Hu Tsu Tau]. Bill considered in Committee; reported without amendment; read a Third time and passed. NATIONAL REGISTRATION (AMENDMENT) BILL Order for Second Reading read.”
“In other words, they are engaged in lending for housing loans, hire purchase of cars, hire purchase of consumer durables and they make personal loans. The limitation is that finance companies are not allowed to lend more than $5,000 unsecured whereas banks are allowed to do so. For finance companies which have raised the capital sums to $100 million or more, flexibility has been allowed to allow them to invest their capital and to trade in foreign currencies and foreign assets to improve the yield on their capital funds. Whilst the increase in capital funds is required for prudential reasons, sufficient flexibility for the larger capitalised companies has been provided so that they can more effectively compete with the banks and sustain their development into the future. Mr Chiam has asked two questions relating to drug offences. He feels that the scope for Singaporeans, particularly those who are being charged under these changes, is too wide and therefore there is a risk that people will be inadvertently caught. I have said that the provisions are such that for the charges to stand, there should be a prima facie case that the offence has been committed and that the court is satisfied. I think this is quite a significant safeguard so that no casual offences would be incurred by Singaporeans. As to whether the fines are adequate, I think for the time being we consider them to be so. Confiscation, in fact, is the major deterrent.”
“So it poses no special disability or disadvantage to finance companies. He has also asked whether the finance companies should be required to publish their annual accounts in four languages as required under the Banking Act. Under the Banking Act, banks which collect deposits of less than $250,000 from persons would be required to publish accounts in four languages because they cover a whole range of small depositors and it is important that these people are aware of the financial affairs of the company. For wholesale banks which collect large amounts exceeding $250,000, then they are given the discretion to publish their accounts in English. As all finance companies collect retail deposits, they are therefore required to publish their accounts in the newspapers in the four official languages. However, as with the Banking Act, the MAS will prescribe the format in which the accounts need to be published and it is the intention to allow finance companies to publish their accounts in a condensed form to reduce the cost burden. Mr Leong Horn Kee has also asked, with the increase of the capital sum of finance companies from the present level to $50 million, what would be the range of businesses which finance companies can do. I should like to point out that in fact finance companies do practically everything that a bank does in the local Singapore dollar market. They are not allowed to issue cheques. Finance companies collect fixed and saving deposits from the public and lend money to the public. They provide general financing for motor vehicles, consumer durables and mortgage loans for housing. They are also allowed to lend to the various sectors such as building and construction, shipping, general commerce and manufacturing as well as to professionals and individuals.”
“We do not think so because this is a prudential requirement which already applies to banks, and finance companies should be able to meet this because their assets and capital have increased substantially over the years. If a finance company wishes to extend more loans to a single customer, then all it need do is to increase its capital. The basic requirement is to ensure that prudential risk is reduced. Finally, Dr Ow has asked why the exemption granted to finance companies with capital sums exceeding $100 million to allow them to invest in foreign currency assets and gold and other precious metals should not be extended also to companies with capital funds between $50 million and $100 million. The reason is that dealing in foreign currency, whether in currencies or equities or bonds, involves a considerably higher risk and therefore only companies with adequate personnel and systems in place should be allowed to deal in these foreign currency assets. Any finance company with capital below $100 million would find it difficult to justify acquiring the expertise and the techniques necessary to deal in these securities adequately because they are also subject to the 10% capital limit on foreign currency exposures. So the amount of funds which they have available for operating in this area would be quite small and the MAS assesses that it is not worth their while if they have capital funds less than $100 million to venture into an area like foreign assets. Mr Leong Horn Kee has asked three questions. The first question is whether the 12% capital adequacy ratio should not be also applied to banks. I have said that this is already an existing condition for banks and I have explained how the capital adequacy ratio actually works.”
“Those with funds above $100 million, there are seven. The third question is how many existing finance companies do not meet the 12% capital adequacy ratio and whether some flexibility might be introduced to assist them in case they cannot meet this requirement. Of the 23 finance companies, only five are currently unable to meet the capital adequacy ratio. However, the five finance companies should be able to meet the requirement within the one year grace period as most of their ratios are not much below the 12% level. I think they should have no real difficulty in meeting the requirement. If they are still unable to do so by the end of the grace period, they have the option of reducing their loan figure to meet this requirement. The fourth question is why the same capital adequacy ratio applied to banks is also applied to finance companies. I should point out that in computing the capital adequacy ratio, the credit risk of the assets of a financial institution is already taken into account in the computation. In other words, the capital required to support a particular portfolio loan is calculated from the type of composition of the loan portfolio and the risk associated with it. Companies with the same total portfolio of, say, $100 million could have quite different capital requirements, depending on their risk profile. So the capital adequacy ratio itself and the formula used to provide for the risk is different between different companies and different between banks and finance companies. The fifth question is whether the reduction in exposure from 30% to 25% for single customers will affect finance companies.”
“Mr Speaker, Sir, Dr Ow has asked a series of seven questions which I will try to answer in turn and Mr Leong has also asked three questions. The first question raised by Dr Ow is how the $50 million minimum capital sum for finance companies determined. This figure was based on an assessment by MAS of the desirable minimum level of capital which finance companies ought to have in order to ensure that finance companies are sufficiently well capitalised and to provide an assurance to the public. The figure was decided in consultation with the Finance Houses Association of Singapore which originally asked for a minimum sum of $80 million. The reason for the higher figure is that they felt that a higher capital sum would enhance the status of the finance companies and assure depositors that they are financially sound and to improve their competitiveness relative to banks which had been encroaching into their areas. But the MAS decided to maintain the figure at $50 million initially subject to future reviews. It believes that $50 million is adequate for the time being. The second question is how many existing finance companies would not be able to meet this new capital requirement and how many companies have capital sums below $50 million and so forth. Of the 23 finance companies, 10 are presently unable to meet the $50 million capital requirement. Since two of these are subsidiaries of banks, they should have no problem in raising the additional capital. The others will have eight years which I provides ample time for them to meet the increased funding requirements. The capital funding position of finance companies is as follows: Those with capital funds below $50 million, there are 10 of them. Between $50 million and $100 million, there are six.”
“The aggregate amount of foreign currency exposure of a finance company which is approved by MAS to conduct such foreign currency activity, however, cannot exceed 10% of its capital funds in order to ensure that the finance company does not become over exposed to foreign exchange risk. Secondly, the Bill exempts finance companies' transactions with the Government and banks from the 25% single customer loan limit and the substantial loans limit (that is, loans which exceed 15% of the finance company's capital funds). Thirdly, the Bill provides finance companies more flexibility to invest in high quality financial instruments. The Bill proposes to exclude purchases of Government securities and bonds issued by statutory corporations in Singapore from the unsecured loans limit as such securities are of low credit risk. This unsecured loans limit prohibits a finance company from granting unsecured loans of more than $5,000 to any person and the aggregate amount of such unsecured loans cannot exceed 10% of a finance company's capital funds. The other housekeeping amendments, namely, those pertaining to the imposition of penalties for breaches of regulations issued by MAS, and the definition of terms, do not warrant any special attention in addition to what has been stated in reference to them in the Explanatory Statement. Sir, I beg to move. Question proposed. 2.00 pm”
“These provisions appearing in clauses 6 to 8 would require finance companies to:- a) make adequate provisions for bad and doubtful debts before declaring any profit or loss; b) obtain approval from MAS before the publication of interim and annual accounts in order for MAS to ensure that all the provisions of the Act have been complied with before accounts are finalised; c) submit information on loans and credit facilities granted to the finance companies' directors, employees and related borrowers to MAS on a monthly basis; and d) require directors of finance companies to disclose to their Board their personal interest in credit facilities provided by the finance company to ensure that the Board is aware of any possible conflict of interests. The Bill provides, at clause 12, for MAS to issue notices to finance companies relating to their operations and the code of conduct governing the manner in which a finance company deals with its customers, for example, informing customers of effective interest rates and disclosing to customers of the risks of financial transactions. While the Bill seeks to tighten prudential requirements of finance companies to enhance the soundness of the industry, it also proposes amendments to liberalise existing regulations to broaden the scope and activities of finance companies without compromising the standard of supervision. Firstly, the Bill provides better capitalised finance companies greater scope to expand into new businesses which may entail higher risks and therefore require higher level of capital. The Bill proposes to allow finance companies with capital funds of $100 million or more to apply to MAS for exemption from the prohibition on dealing in precious metals, foreign currency denominated securities and foreign exchange.”
“The next group of amendments in clause 15 sets out the provisions for requiring finance companies to assist in the investigation of drug money laundering offences. The Drug Trafficking (Confiscation of Benefits) Act allows the investigation, tracing, freezing and seizure of proceeds from drug trafficking and provides legal assistance to foreign enforcement agencies on fulfilment of certain conditions. The new provisions would facilitate applications for production orders and granting of mutual assistance to foreign government agencies where a customer of a finance company is involved in the laundering of drug proceeds. To ensure that assistance is provided only for genuine drug trafficking investigations, a prima facie case of drug trafficking has to be established. Such assistance would be provided only if it is not contrary to the national interests of Singapore. Finance companies are required to maintain minimum reserves with the Monetary Authority of Singapore (MAS) of 6% of their liabilities base. As in the Banking Act, the amendment to section 31 at clause 13 proposes to empower MAS to direct a finance company to make good any deficiency in such reserves within a specified period. The Bill also proposes to put into legal effect certain existing requirements which are currently imposed administratively on finance companies and to bring them in line with the requirements of the Banking Act.”
“Currently, a finance company is not allowed to grant credit facilities to any single borrower or any group of connected borrowers in excess of 30% of its capital funds. The Bill proposes to reduce the limit to 25% to bring it in line with the Banking Act and the recommendation of the BIS. Finance companies would be given two years to bring existing credit facilities within the new limit. The lower limit should not adversely affect finance companies' ability to extend credit facilities to their customers as the finance companies' capital funds have increased significantly from $1.1 billion at the end of 1984 to $2.1 billion at the end of September 1994. Under existing provisions, all directors of a finance company are jointly and severally liable for losses incurred by the company arising from the default of unsecured loans to any of its directors or any firm in which any director of the company has an interest or any corporation that is related to the finance company. The definition of "firm", however, covers only sole proprietorships and partnerships but not companies. Directors of a finance company are therefore not liable for losses arising from unsecured loans granted by the finance company to any company that a director has an interest. To close this loophole, the Bill proposes to extend the liability of such directors to include loans granted to private and non-listed public companies in which any director owns more than 50% of the share capital or controls the composition of the board. Public listed companies and their subsidiaries are excluded as they are subject to the scrutiny of the investing public and the Stock Exchange of Singapore.”
“To ensure that finance companies' capital resources are adequate in relation to the scale and risks of their operations and to enable them to better absorb unexpected losses, the Bill proposes to require finance companies to maintain a minimum capital adequacy ratio of 12%, which is the same as that prescribed for banks. Finance companies would be given one year to comply with this requirement. Most finance companies currently have capital adequacy ratios exceeding the 12% standard. Clause 6 deals with the transfer of profits to the reserve fund. As the minimum paid-up capital of finance companies would ultimately be raised from $0.5 million to $50 million, the existing formula for the transfer of profits to the reserve fund would become obsolete. Under the new provisions, all finance companies would be required to transfer at least 50% of after-tax profits to the reserve fund if the reserve fund is less than 50% of paid-up capital. If the reserve fund ismore than 50% but less than 100% of paid-up capital, the sum to be transferred should not be less than 25% of after-tax profits. If the reserve fund is 100% or more of the paid-up capital, the amount to be transferred should not be less than 5% of after-tax profits. This is in line with the requirement for banks. Finance companies currently cannot deal in gold or foreign exchange. Such transactions carry higher risks and finance companies which are generally less well capitalised may not have the expertise and resources to conduct such activities. The Bill proposes to extend the prohibition on dealings in gold and foreign exchange to cover investments in other precious metals, and bonds and shares denominated in foreign currencies. The Bill also proposes to reduce the single customer lending limit.”
“I will now explain the main provisions of the Bill in greater detail. Clause 5 of the Bill amends section 7 of the Act to require finance companies to have minimum capital funds of $50 million. The minimum paid-up capital requirement for finance companies has remained unchanged at only $0.5 million since 1968. In view of the strong growth in finance companies' operations over the past 25 years, the minimum capital requirement of $0.5 million is now grossly inadequate for their operations and to protect depositors' interests. It is proposed that existing finance companies be required to have a minimum capital fund of $50 million. As at the end of November 1994, 13 of the 23 finance companies have capital funds above $50 million. Two of the 10 companies with capital funds below $50 million are bank-owned and should have no difficulty in raising funds to meet the new capital standard. The remaining eight companies with capital funds below $50 million and are not affiliated with any bank would be given a relatively long period of eight years to build up their capital to the required level. Alternatively, they can meet the new capital requirement through mergers. New applicants for finance company licences would be required to have minimum paid-up capital of $50 million. Presently, finance companies are not required to observe any minimum capital adequacy ratio. As recommended by the Bank for International Settlements (BIS), the capital adequacy ratio is a measure of the adequacy of capital funds of financial institutions relative to the size and risk of their loan and investment portfolios. Assets which carry a higher level of credit risk need to be supported by a higher amount of capital.”
“I will now touch on the main provisions of the Bill, which will: (a) increase capital requirements for finance companies in order to strengthen their financial resources; (b) require finance companies to transfer part of their profits to a reserve fund, in line with a similar provision in the Banking Act; (c) extend the existing prohibition on finance companies from dealing in gold and foreign currencies to investments in other precious metals and foreign currency denominated securities; (d) reduce the single customer loan limit from 30% to 25% of capital funds of finance companies; (e) require directors of finance companies to indemnify their companies against losses arising from unsecured loans granted to private and non-listed public companies in which the directors of the finance companies control or have an interest; (f) facilitate the investigation of suspected drug money laundering activities pursuant to the Drug Trafficking (Confiscation of Benefits) Act; (g) give legal force to existing requirements on provisions for bad and doubtful debts, publication of audited accounts, granting of loans and advances to persons related to a finance company or its directors and disclosure of interests by directors of a finance company in loans granted by the finance company; (h) liberalise the scope of activities for finance companies with capital funds of at least $100 million by allowing them to deal in foreign exchange, foreign currency denominated investments and precious metals up to 10% of their capital funds; (i) exempt finance companies' loans to Government and banks from the single customer loan limit and the substantial loans limit; and (j) exempt finance companies' purchases of Singapore Government securities and statutory board bonds from the unsecured loans limit.”
“The proposed amendments to the Finance Companies Act are needed to update regulations so that they can continue to be effective in preserving the health of the industry. Prudential requirements in the Act would be brought in line with the amendments to the Banking Act in 1993, and with developments in international supervision standards. The Bill seeks to enhance prudential standards for finance companies, introduce procedures for investigation of drug money laundering offences and improve MAS' supervision of finance companies. The Bill also liberalises a number of regulations to provide greater scope and flexibility for the operation of finance companies. MAS has discussed the proposed amendments with the Finance Houses Association of Singapore whose views have been taken into consideration in the drafting of the Bill.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The Finance Companies Act was last amended in November 1984. Since then, the operating environment for finance companies has changed significantly. This has made it necessary to review the Act to ensure its continued effectiveness in fostering prudent operations of finance companies and sound supervision of the industry. Finance companies now face intense competition from banks in the retail financing business. Banks are encroaching into activities traditionally the domain of finance companies, such as the financing and purchase of cars and houses. Some finance companies have responded by merging in order to compete. As a result, the number of finance companies fell from 34 in 1984 to 23 today. Between 1984 and September 1994, total assets of the industry expanded by 142% from $7.2 billion to $17.4 billion while total pre-tax profits rose by 117% from $135 million to $293 million between 1984 and 1993. In the past decade, many financial institutions suffered large loan losses as a result of imprudent lending to the property and stock markets. In some cases, governments have had to spend massive sums of taxpayers' money to rescue insolvent financial institutions. Regulators are now much more conscious of the need for financial institutions to be adequately capitalised to provide for unexpected losses. These experiences also underscored the need to ensure that regulations for the supervision of financial institutions are continually updated to keep pace with market developments and the scale of operations of these financial institutions.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Third time." Question put, and agreed to. Bill accordingly read a Third time. MOTOR VEHICLES (THIRD PARTY RISKS AND COMPENSATION) (AMENDMENT) BILL Order for Second Reading read.”