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Amendments to the Banking Act
On 16 May 2001, Parliament passed the Banking Amendment) Bill. The Act will implement various new policy measures, some of which have been announced over the past year. These measures will strengthen corporate governance, place greater emphasis on effective supervision over regulation, and grant greater operational flexibility to banks. The key measures are:
a) The introduction of new rules to implement the policy announced on 21 June 2000 to separate financial and non-financial businesses and to unwind cross-shareholdings within the local banking groups.
b) The facilitation of the setting up of new banking subsidiaries by local banking groups to undertake new business models, including Internet-only banks (IOB). The minimum paid-up capital requirement for subsidiaries of Singapore-incorporated banks that have already met the $1.5 billion capital requirement, is set at $100 million, provided the Singapore-incorporated parent bank retains control over the subsidiary.
c) The revision of the rules on property-related loans to more effectively monitor and limit banks’ exposure to the property sector. The amended Banking Act empowers MAS to make regulations to limit property-related loans. This allows MAS to continuously
manage and supervise banks’ risk exposure to the property sector, and make prompt adjustments when necessary. One key change to be introduced via regulations is the widening of the definition of property exposure to include not only property-secured lending but all forms of credit exposures related to property development and investment.
d) The introduction of more effective rules to ensure that the control of Singapore-incorporated banks continues to rest with individuals or groups that will act in a manner consistent with the interest of the bank and the national interest. A new 12% threshold on shareholding in banks held by a single shareholder or shareholders acting in concert has been put in place, in addition to the existing ones of 5% and 20%. Prior approval is required to cross each of these limits.
e) The granting of more operational flexibility to banks in handling client information, without compromising confidentiality.
Securities and Futures Act
After conducting a comprehensive review of Singapore’s existing securities and futures legislation, MAS has completed the drafting of the Securities and Futures Act (SFA), which is targeted for enactment in the second half of 2001. The Act will introduce major structural policy initiatives in the securities and futures industry. It will also rationalise and consolidate the provisions in the Securities Industry Act, Futures Trading Act, and certain securities-related provisions in the Companies Act (including those on prospectuses, collective investment schemes, disclosure, take-overs and share hawking) into one comprehensive legislation.
The reforms introduced in the Act include:
a) The introduction of a modular, single licensing regime for securities and futures intermediaries.
b) The introduction of a Recognised Trading System Providers regime to facilitate the regulation of Alternative Trading Systems and Overseas Stock and Futures Exchanges.
c) The transfer of corporate fund-raising provisions from the Companies Act to the SFA and a fine-tuning of these provisions.
d) The continuous disclosure of material information by listed companies and notification by holders of substantial shareholdings.
e) The transfer of unit trust provisions from the Companies Act to the SFA, and fine-tuning of these provisions.
f) The introduction of an information-connected test for insider trading.
g) The extension of civil fines and civil remedy provisions (presently applicable only to insider trading) to other forms of market misconduct (eg. market rigging or employment of fraud).
A public consultation document and the draft legislation were released in March 2001. The following details some of the more significant changes to our regulatory framework to be introduced in the SFA.
Regulatory Framework for Alternative Trading Systems
MAS will put in place a broad framework for Alternative Trading Systems (ATS) operated by dealers, electronic communications networks and overseas exchanges, taking into account developments such as new business models and increased cross-border transactions. Any overseas exchange that operates an ATS in Singapore as well as any participant that is not a full-fledged exchange but maintains a market on an ATS shall be authorised under a new category known as "Recognised Trading System Providers".
Corporate Finance
With the transfer of the corporate fund raising provisions from the Companies Act to the SFA, MAS will take over from the Registry of Companies and Businesses as the prospectus registration authority. Concurrently, some of the provisions have been fine-tuned to strengthen the corporate disclosure regime. These are:
a) The empowerment of MAS to issue a stop order and prevent further issues of securities if a prospectus is found to be misleading or in any way deficient after it had been registered. Investors who have subscribed for securities on the basis of the deficient prospectus will be allowed to withdraw their applications (or, if the securities have already been issued, to return the securities to the issuer) and have their monies refunded.
b) The requirement that all prospectuses lodged with MAS be registered not earlier than 14 days and not later than 28 days after lodgement, unless rejected for registration due to non-compliance with the statutory disclosure requirements or on public interest grounds. Prospectuses lodged for registration will be published on the Internet for public comment.
c) The continuous disclosure of material information by listed corporations, currently a non-statutory requirement in the Singapore Exchange (SGX) Listing Manual.
d) The legal requirement for SGX to be notified of substantial shareholdings (5% or more of a company’s issued capital) and changes thereto in listed companies within two days of the date of change. Currently, such notifications go through a two-stage process in which the substantial shareholder first notifies the listed company which in turn makes an announcement to SGX.
Transfer and Fine-tuning of Unit Trust Provisions
During the year, MAS proposed a revised regulatory framework for unit trusts. The key features of the revised regulatory framework are:
a) The authorisation of collective investment schemes by MAS, including unit trusts, for offer to the public, replacing the current practice of approving trust deeds of schemes. MAS will also be able to withdraw or suspend the approval of schemes which or whose managers fail to comply with the proposed SFA or a non-statutory Code which will set out operational requirements for funds.
b) The direct offering of foreign funds instead of passage through a feeder fund structure. To facilitate legal recourse for investors, offerors of foreign funds will be required to register a foreign company under Singapore law.
c) The approval of the trustees of unit trusts will be on a one-off basis, superseding the current practice of approving each and every unit trust. Once approved, a trustee may act for any collective investment scheme without further approval. In order to facilitate ongoing supervision of such approved trustees, MAS will be empowered to require the continued compliance of trustees with the requirements in line with their approved status, inspect and require returns from them.
d) The provision in the proposed non-statutory Code that only deposits with (and not equity or bond investments in) related banks will be permitted. A current provision prohibits a unit trust from investing in or lending to the management company, the trustee or their representatives, or to any company (except a bank) related to either of them.
e) The exemption of collective investment schemes offered to institutional investors from authorisation and recognition, and the sole requirement for those offered to sophisticated investors that these schemes must apply for "restricted authorisation" or "restricted recognition". All such schemes will be exempted from the requirement to register a prospectus, subject to disclosure in their marketing materials or contract notes that the schemes are not approved for offer to the retail public and that any statutory liability under the Act in relation to prospectuses would accordingly not apply.
Financial Advisers Act
With the increasing convergence of investment products sold through common distribution channels, MAS will be introducing a new Financial Advisers Act (FAA) to harmonise the regulatory regime for similar activities across investment products. The FAA will govern financial advisory activities in respect of a range of investment products, and the distribution or marketing of specific functionally-similar investment products, namely life insurance policies and collective investment schemes, including unit trusts.
The FAA will consolidate and streamline the current regulatory regime governing the provision of financial advisory services in respect of securities, futures and life insurance products, which are covered in different Acts, into a single piece of legislation. This will provide a more flexible and integrated regulatory framework for entities engaging in financial advisory activities. The consolidation will also facilitate the setting and maintenance of consistent professional standards across the industry.
A public consultation document and the draft legislation were released in March 2001. The FAA is scheduled for enactment in the second half of 2001.
Lloyd’s Asia
MAS is in the process of enacting legislation to allow Lloyd’s to carry on underwriting activities in Singapore through locally-established representatives of Lloyd’s Managing Agents. These representatives in Singapore will underwrite risks on behalf of syndicates at Lloyd’s. This initiative, called the Lloyd’s Asia Project, will serve to broaden and deepen the Singapore insurance market.
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