Speech by Deputy Prime Minister and Chairman, Monetary Authority of Singapore, for the Second Reading of the Financial Advisers Bill 2001 in Parliament on 5th October 2001
"Moving on to the Financial Advisers Bill (FA Bill), Mr Speaker Sir, I beg to move that the Bill now be read a second time.
2 The FA Bill proposes to regulate Financial Advisers and their representatives, and to repeal the Insurance Intermediaries Act (Chapter 142A, 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.
3 The current regulatory framework for Financial Advisers are 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.
4 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.
5 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. Financial intermediaries are now expanding beyond traditional lines of business to provide "one-stop" service to meet investors' financial needs.
6 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.
7 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 SIA, FTA and IIA, into a single legislation.
8 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 authorize 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.
9 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.
10 Thirdly, the Bill will create of 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 ILPs. 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.
11 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.
12 In preparing the FA Bill, MAS has conducted public consultation on an earlier draft of the Bill. All comments were carefully considered and where relevant are incorporated into the Bill. I will now highlight some of the key policy initiatives contained in the Bill.
A Single Licensing Regime
13 The FA Bill will introduce a streamlined licensing regime for persons engaging in financial advisory activities on securities, futures and life insurance. Section 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.
14 Section 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.
Prudential Requirements for Licensed Financial Advisers
15 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/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 in the practice in other professional fields. Section 10 empowers MAS to take certain 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 utilization of the Licensed Financial Adviser’s financial resources, without compromising investor protection.
Exemption for Financial Institutions Supervised by the Authority under Other Act
16 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. 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
17 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.
18 Sections 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
19 CEOs and directors are the key persons of a company. It is important that such key appointments are held by persons of integrity and 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 (Section 56). The fit and proper criterion is a continuing requirement. 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 (Section 57).
Inspection Power of MAS
20 On-site inspection of intermediaries is an integral part of MAS' supervisory framework. MAS' inspection power will be provided for under Section 70 of the Bill.
Appeals to be made to the Minister
21 The appeals process in the Bill is similar to that in the SF Bill.
"Mr. Speaker Sir, I beg to move."
(a) securities, including unit trusts;
(b) futures contracts, as well as contracts or arrangements for the purposes of foreign exchange trading and leveraged foreign exchange trading; or
(c) life insurance policies, including investment-linked insurance policies. The following items are excluded from the definition of investment products, namely general insurance policies, bank deposits, loans and mortgages.
To provide the flexibility to cater to new product development and/or market changes, the Bill will empower MAS to prescribe, via regulations, additional financial instruments as investment products.
Advising others, concerning investment products, other than advising on corporate finance;
Issuing or promulgating analyses or reports concerning investment products;
Marketing of any collective investment scheme, including unit trusts; or
Arranging of any contract of insurance in respect of life policies.