Speech by DPM at the 2nd reading of the The Securities Industry (Amendment) Bill 2000
Date: 17 Jan 2000
Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."
1 Over the last two years, we have taken a series of measures to liberalise and allow freer play in the financial sector. Our aim is to create vibrant financial markets that fuel economic growth. This requires a regulatory framework that is sound, strong and in line with best practices. Financial markets work freely only with an appropriate set of ground rules operating in the background, which everyone knows and plays by. Regulators and enforcement agencies must be able to promptly detect and deal with actions that harm investors. If investors lose confidence in the integrity of our securities markets, we will enter a vicious cycle. Stock valuations will be poor because there is little secondary activity. Good companies will shun listings on the market, while doubtful ones embrace the opportunity.
2 Rules therefore do matter. The two principal pieces of legislation governing trading on our securities markets are the Securities Industry Act ("SI Act") and Futures Trading Act ("FT Act"). While the latter was substantially amended in 1995, the former has not been amended since 1986, when it was enacted. For example, our insider trading provisions, which are found only in the SI Act, were drawn from 1980 Australian legislation. Australia's practice has subsequently evolved, and their legislation was amended in 1991, but we have not yet brought our legislation up to date.
3 MAS has examined the provisions governing insider trading in Australia, as well as the laws in other countries with more developed markets. We have concluded that the most pressing gaps are in the lack of civil remedies for insider trading. These gaps will be remedied by this amendment.
4 Besides insider trading, the other main amendment in this bill is to the rules governing the provision of assistance to foreign regulators. We propose to enact specific provisions in both the SI Act and FT Act to extend MAS' powers in this regard.
Civil Remedy for Insider Trading
5 Presently, under the Securities Industry Act, insider trading is a criminal offence. In addition, an investor can obtain civil compensation from a person convicted of insider trading. The civil action has to be brought within 2 years of the date of the offence, and depends on a conviction being secured within that period. However, securing such a criminal conviction is difficult, because the elements of the offence have to be proved "beyond reasonable doubt". Many developed financial jurisdictions have therefore complemented their criminal regime for insider trading with autonomous civil actions, where the burden of proof is only on the "balance of probabilities".
6 The Bill proposes to introduce two such civil actions, both with limitation periods of 6 years, instead of the 2 years previously. First, the proposed Section 104A empowers the regulator, MAS, to bring an action to obtain a civil penalty. Where MAS succeeds in such an action (under sections 103(1), (2), (3) or (6)), the court may impose a penalty not exceeding three times the amount of profit gained, or loss avoided, by the contravening person, subject to a minimum sum of $50,000 for an individual, and $100,000 for a body corporate. Where the insider procures another person to trade, or communicates the inside information to another person for that purpose, and thus does not himself make a profit or avoid a loss, the civil penalty will range from $50,000 to $250,000.
7 This penalty is in effect a fine, but the regulator only needs to meet the civil burden of proof, instead of the standard of proof for a criminal conviction. While new to our jurisprudence, there are overseas precedents. Both the US Securities and Exchange Commission and Hong Kong's Securities and Futures Commission have successfully utilised it for some time. The United Kingdom has also proposed a civil penalty regime for market abuse, including insider trading, in their Financial Services and Markets Bill 1999.
8 The proposed Section 104C also creates an independent civil action, enforceable by "contemporaneous" investors, to obtain damages from the contravening person. The compensation will be limited to the gains made or losses avoided by the contravening person. The phrase "contemporaneous" covers investors trading at or about the same time as the contravening person, whether or not their orders were in fact matched with the contravening person. This is because they would have been adversely affected, even if their particular orders were not matched. The price at which they traded their shares would have been quite different had the information been in the marketplace.
9 Under Section 104E, investors can submit their claims on the coattail of a criminal conviction or successful civil penalty action by MAS, and will not need to re-prove all over again the elements of the contravention. They have 3 months from the date the conviction or award of the civil penalty is made final to do so.
10 This three-pronged regime is quite similar to the existing framework in the US. We believe it is the best approach for combating insider trading. Investors bear responsibility for their own investment decisions, but the playing field must be kept level. Strong capital markets will attract investors from abroad, boost stock valuations on the Singapore Exchange, and, in turn, draw dynamic and well-managed companies to list on the Exchange. More financial intermediaries will follow their customers to Singapore. The creation of such a virtuous circle begins with the quality and enforcement of our financial laws.
Assistance to Foreign Regulators
11 We have always made arrangements for mutual co-operation between financial regulators. Through Memoranda of Understandings ("MoUs"), we have had arrangements with other regulators on a national basis. But in the past, most regulatory issues were national issues. Trans-border cases involving multiple jurisdictions were the exception. But now with the globalisation of financial markets, financial crimes too have gone international. Money laundering and complex scams straddle multiple jurisdictions, taking advan-tage of the gaps in oversight and cooperation between national authorities. This has called for a regulatory rethink. Individual regulators cannot go it alone, and hope to be successful in maintaining fair, efficient and transparent markets.
12 Over the last few years, the Singa-pore authorities have received more requests for assistance from foreign regulators. While we have cooperated with them as fully as we could, within the constraints of our law, on a few occasions the legal restrictions have prevented us from providing the information they sought, even though their requests appeared legitimate.
13 We have also been participating in international bodies like the Financial Action Task Force ("FATF"). The FATF is concerned with international cooperation to combat money laundering. FATF reviews have highlighted weaknesses in our legislation, and brought home to us the necessity of cooperating more closely with other financial centres. We have to maintain our good reputation as a centre which does not shelter illegal gains. Singa-pore is not the place for the laundering of drug money or dodging regulatory oversight.
14 The formation of cross-border exchange alliances is another factor. The Singapore Exchange Derivatives Trading (formerly SIMEX) has had a mutual offset arrangement with the Chicago Mercantile Exchange for 15 years. Now this arrangement is being expanded and strengthened to become the GLOBEX Alliance, involving more exchanges in other countries. Before foreign regulators give their approval to such exchange alliances, they invariably want MAS to enter into information sharing arrangements with them. In the case of the SIMEX-CME linkup, MAS has had a long-standing arrangement for mutual assistance with the US Commodity Futures Trading Commission. Now with the GLOBEX Alliance, which includes the SBF-Paris Bourse, MAS has recently entered into MoUs on mutual assistance with the French regulators, COB and CMF.
15 This Bill will strengthen these relationships with other regulators, and further facilitate our co-operation with them, particularly regulators in developed economies like the United States, United Kingdom and Hong Kong.
16 The Bill proposes specific provisions on the nature of assistance, the conditions for assistance and the safeguards that apply. Upon receiving a request, MAS will examine if the pre-conditions necessary for it to render assistance have been fulfilled. For example, MAS must be satisfied that a request relates to a matter of sufficient gravity, and that the information requested cannot reasonably be obtained by any other means. The granting of assistance also cannot be contrary to the public interest or the interest of the investing public. If the conditions are met, MAS will consider further factors such as reciprocity, and whether the act committed overseas would be an offence under our relevant legislation had it been committed in Singapore, before deciding whether to grant assistance.
17 The types of assistance MAS may provide include transmitting information in its possession, and requiring a person to furnish the requisite information to MAS for that purpose. MAS can also require a person to furnish information directly to the foreign regulator. Persons who comply with MAS' requirements in this regard receive immunity where they would otherwise have been in breach of obligations such as client confidentiality.
18 In parallel with this, we are also amending other laws to improve cooperation with foreign regulators. In September 1999, we amended the Drug Trafficking (Confiscation of Benefits) Act to lower the threshold requirement for mutual legal assistance, and to expand the scope of offences covered beyond drug trafficking to a range of established serious crimes. The Minister for Law has just introduced for First Reading the Mutual Assistance in Criminal Matters Bill which, when passed, will enable us to conclude mutual legal assistance treaties with other governments.
19 The new provisions therefore provide adequate safeguards to prevent foreign authorities from fishing for information, and protect the legitimate needs of investors for confidentiality of their financial transactions and arrangements. Our provisions will be similar to those in other established financial centres, including Switzerland and Hong Kong. Investors need not worry that the provisions will undermine the protection they have hitherto enjoyed. On the contrary, enhanced cross-border co-operation among securities regulators should increase their confidence in the soundness and integrity of Singapore's capital markets.
Enhancing Regulatory Efficiency
20 Besides these two main amendments, the Bill proposes several changes to fine-tune provisions in the Securities Industry Act. These include empowering the MAS to issue written notices, which are deemed not to be subsidiary legislation, to licensees under the Act (new Section 33A); and the rationalisation of the trust account rules for dealers and investment advisers (Sections 58 and 65 respectively).
21 The Bill also proposes to amend the fidelity fund provisions in the Act to cover defalcation or breach of trust by remisiers, as well as the financial default of members of the Exchange licensed by the MAS. Finally, the Bill strengthens the criminal sanctions for market misconduct such as price manipulation and insider trading. It proposes to raise the maximum stipulated fines in section 104 of the Act for the market offences created by Part IX of the Act from $50,000 to $250,000 for an individual, and $100,000 to $500,000 for a body corporate.
Sir, I beg to move.