The Financial Advisers (Amendment) Bill 2005
Second Reading Speech by Mr Tharman Shanmugaratnam, Minister for Education and Deputy Chairman, Monetary Authority of Singapore
Mr Speaker Sir, on behalf of the Senior Minister, I beg to move, "That the Bill be now read a second time".
2 Sir, this Bill seeks to amend the Financial Advisers Act ("FAA") concurrent with the amendments to the Securities and Futures Act ("SFA") that have been moved today. It aims to ensure that the regulation of Financial Advisers remains business friendly, while still maintaining high standards that promote the fair treatment of customers.
3 The MAS has taken into account the feedback received from the industry and the public following public consultation on the draft Bill that was conducted in April 2004.
4 Financial advisers play an important role in financial markets, particular in servicing the retail markets. They are a key conduit by which a wide range of investment products - ranging from securities, to collective investment schemes, to life insurance policies - are introduced and marketed to investors. The FAA was introduced to provide a regulatory framework for such market intermediaries that would support high levels of professional standards across the industry.
5 Sir, I shall now highlight the key amendments that are proposed in the Bill.
Excluding Generally Circulated Advice from Reasonable Basis Requirement
6 First, Clause 15 allows MAS to exclude generally circulated advice from the reasonable basis requirement. Financial advisers are required under the FAA to have a reasonable basis for their recommendations. They must take into account each client's investment objectives, financial situation and particular needs when giving advice or making a recommendation on an investment product. The reasonable basis requirement should not however be applicable in situations where the advice provided is not targeted at any specific person. Such "generally circulated advice" may for example be made via marketing brochures or given at seminars and workshops. The criteria for what constitutes generally circulated advice will be set out in Regulations.
Extending the Scope of MAS' Inspection to Exempt Entities
7 Second, the Bill allows the MAS to inspect exempt entities. Exemptions from licensing and business conduct requirements are currently given to entities that pose minimal risks1. Limitations are imposed on the scope of financial advisory services such entities can undertake. For instance, they are not to undertake any marketing of collective investments scheme or arrange any life insurance contract. Currently, MAS does not have explicit powers to inspect such exempt entities to ensure that they keep to the limitations imposed. To enhance its regulatory oversight and for consistency with the SFA, Clause 12(f) empowers MAS to inspect these exempt entities.
Extending MAS' Powers to issue Prohibition Orders
8 MAS currently has the power to issue a Prohibition Order against undesirable persons to bar them from providing financial advisory services in Singapore. The Act currently sets out certain criteria upon which MAS may issue such an Order. These include where MAS suspends or revokes the licence held by the person, where MAS has reason to believe the person is contravening the FAA or where the person has been convicted of an offence under the FAA or of an offence involving fraud or dishonesty in Singapore or elsewhere. Clause 20 expands the circumstances under which MAS may issue a Prohibition Order to instances where a person has been convicted of any offence in respect of financial advisory activities in a foreign country.
Clarifying Aggrieved Parties' Right to Appeal
9 The Bill also clarifies the right to appeal of aggrieved parties. The FAA currently provides for a right of appeal to the Minister if parties are aggrieved by MAS' administrative decisions, such as the rejection of an application for a licence or the revocation of a licence. There is ambiguity as to whether third parties may appeal to the Minister against these decisions2. Clause 11 clarifies that only the applicant for the grant, renewal or variation of a licence or a person whose licence is revoked or suspended may appeal to the Minister3.
Easing the Restriction on Granting Unsecured Credit
10 Sir, the Bill also introduces amendments that mirror those in the Securities and Futures (Amendment) Bill 2005. The current restriction on licensed financial advisers granting unsecured credit facilities to their directors, officers, employees or representatives for trading purposes will be removed under Clause 14. As with the SFA, there are sufficient existing safeguards in the FAA on loans to directors, officers and employees to mitigate the risk of licensed financial advisers being excessively exposed to such credit risks.
Expanding the Grounds for Refusing Grant or Renewal of Licence, or Revoking a Licence
11 The grounds under which MAS may refuse an application for the grant or renewal of a licence, or revoke a licence, will be expanded under Clauses 6 and 7 to include cases where the applicant or licensee furnishes false or misleading information to the MAS. Such acts call into question the integrity of the person concerned.
12 Sir, in conclusion, the Bill introduces changes which will enhance MAS' quality of supervision and will over time help to raise the level of professionalism of the financial advisory industry. The updated legislation will encourage market competition, while moving up the quality bar. It will support the evolution of better quality advice and higher service standards by financial advisers, and strengthen consumer confidence in the industry.
13 Mr Speaker, Sir, I beg to move.
1 For example, class exemptions have been granted to
(i) any approved headquarter company or approved Finance and Treasury Centre which carries on a business involving the provision of the provision of all or any type of financial advisory service where such provision of financial advisory service has been approved as a qualifying service in relation to that headquarter company or Finance and Treasury Centre under the Income Tax Act;
(ii) a corporation providing financial advisory services to its related corporations; and
(iii) a person resident in Singapore who provides financial advisory service to not more than 30 accredited investors on any occasion.
2 These third parties may include people who have a vested interest in the success or failure of the applicant, such as a competitor of the applicant, or a creditor of the applicant - who may feel that successfully getting a licence would enable the applicant to be able to repay his debts.
3 The practice in other leading jurisdictions, such as UK, Hong Kong and Australia are similar. Generally, only parties who are directly affected by the decision may lodge an appeal.