Keynote Speech By Mr Ng Nam Sin, Assistant Managing Director, Monetary Authority of Singapore,at the Society for Trust and Estate Practitioners (STEP) Asia Conference
1. A very good morning to everyone. To our guests from overseas, a very warm welcome to Singapore. It is good to know that this Conference is a sell-out event. Looking at the changes in the global financial landscape, this is indeed an opportune time for industry practitioners to gather and exchange views.
Increasing Importance of Trust Services in Asia
2. All of you must be familiar with the Asian growth story so I will not belabor that point. In tandem with the phenomenal growth in Asian wealth, the provision of trust services is also growing in importance. Trusts have increasingly become an integral part of succession planning. Rising inter-generational wealth transfers and familiarity with the trust concept have spurred demand for trusts. According to Merrill Lynch Capgemini’s Asia Pacific Wealth Report 2011, unique demographics in Asia Pacific are largely driving the demand for succession planning in the region. There are a few drivers.
3. First, wealthy individuals and families in Asia are predominantly first or second generation. They do not invest much of their wealth in institutional forms such as trusts, unlike their European counterparts. Second, 68% of all HNWIs in Asia-Pacific excluding Japan are relatively young, between 31 to 55 years of age, suggesting a potentially large wave of wealth transfer over the next decade. Third, Asian families are also looking to conduct their charitable giving in a more strategic and structured manner as Asian philanthropic activities grow.
A Trusted Regime Supports Industry Growth
4. So how does Singapore feature in all these? In Singapore, the trust services industry has expanded steadily over the years, along with the robust growth in the wealth management industry. Many leading trust service providers have established a presence in Singapore to develop their Asian franchise. To date, we have around 50 licensed trust companies operating here, compared with about 30 in 2006. Singapore’s reputation as a trusted and credible trust jurisdiction has supported industry growth, and is underpinned by namely, two key fundamentals.
(i) First - Political & economic stability and a robust legal framework
5. Wealthy individuals and families want to have their trusts managed out of a jurisdiction that offers political and economic stability, with a robust and efficient legal and judicial framework. Singapore provides such an environment. I quote our Minister of Law Mr. K Shanmugam who gave the keynote address at the 4th STEP Asia Conference: “We treat money with respect and protect it with honesty and a legitimate framework of laws.” Our legal framework is underpinned by a strong adherence to Rule of Law. Singapore’s civil justice system was rated first in the Rule of Law Index 2010 of the World Justice Project.
(ii) Second - High standards of financial sector regulation and supervision
6. Singapore remains committed to upholding its high standards of financial regulation and strict supervision. We introduced a new regulatory framework for trust companies called the Trust Companies Act (TCA) in 2006, which requires mandatory licensing of such entities. This move was intended to foster high standards of probity, professionalism and good business conduct amongst our trust players.
7. Financial intermediaries including licensed trust companies are subject to our rigorous anti money laundering and counter financing of terrorism (AML/CFT) regime that is benchmarked against international standards. For example, financial intermediaries including licensed trust companies are generally required to identify and verify the identity of the beneficial owners of the trusts that they establish or administer.
8. Let me stress that Singapore will not tolerate the abuse of our financial system to harbor or be used as a conduit for illicit funds. Our rules allow for the necessary transparency in combating criminal activity, whilst safeguarding the investor’s legitimate interest for privacy. Our trust confidentiality regime is not intended to shield criminal activities or proceeds. Being a jurisdiction committed to our international and bilateral obligations, we are able to provide assistance related to foreign request for information on a person’s tax matters, so long as the request is clear, specific, relevant, and not spurious in nature. This is in line with Singapore’s commitment to the OECD Standard for Exchange of Information, after it had been supported as the new international standard by the UN Committee of Tax Experts in October 2008.
Key Challenges Confronting
9. What are the challenges for the trust industry? We recognize the usefulness of trusts for legitimate wealth planning purposes. Nonetheless, trusts are also susceptible to abuse as with other forms of corporate or investment vehicles. Cross-border financial crimes have become increasingly sophisticated and trusts have come under increased scrutiny as a potential conduit for illicit funds. While a recent report by the World Bank called “The Puppet Masters” has revealed that trusts are in fact, ‘used infrequently’1 to launder proceeds of corruption, the perception is one of opacity when one talks about trusts. The industry will have to pay special attention to client due diligence controls, to protect both your firm’s and Singapore’s reputation as a credible trust jurisdiction and safeguard the financial system against potential abuse.
10. The second challenge is the shortage of professional manpower. Post-crisis, clients have become more discerning and demanding for quality advice. The industry needs to enhance its competency, ingrained with ethics, to continue to develop trusted and long term relationships with its clients. To ensure sustainable growth of the trust services industry, it is therefore critical to have a strong talent supply, which is both competent and ethical.
Fostering Sustainable Development
11. Next, I would like to take some time to emphasize three imperatives for the continued success of Singapore as a financial centre and trust services hub. This entails keeping our financial centre clean and, competency and capacity building.
- One, we need to safeguard our standing as a credible trust jurisdiction. This requires having a strong legal and regulatory framework in place.
- Two, we need to, jointly with the industry, step up vigilance against suspicious inflows of funds arising from external developments.
- Three, we will continue to focus on competency and capacity building to enhance quality of existing talent pool, as well as assimilate new entrants.
Let me elaborate on each one of them.
A strong AML/CFT regime
12. First, Singapore will continue to maintain its high standards of financial sector regulation and supervision to protect the reputation and integrity of our financial centre. In a bid to keep our financial centre clean, we are considering how to strengthen our legal and regulatory framework on AML and CFT. This includes potentially introducing a tougher penalty regime for violations of AML/CFT regulations. And, we will examine if there is a need to increase our supervisory intensity and if we should make public, sanctions against persistently errant institutions.
13. Singapore plans to make criminal the laundering of proceeds from tax offences. This is an anticipatory move. The Financial Action Task Force, or FATF, is expected to announce its decision on this matter in February next year. The FATF is an international, inter-governmental body that recommends standards to combat money laundering and terrorism financing. The international effort to combat cross-border crimes continues to evolve, and Singapore will ensure that our regime is consistent with FATF’s updated requirements. We will be consulting the industry on how to establish an effective and practical regime.
Enhanced vigilance against suspicious flows
14. Second, we must step up our vigilance to guard against inflow of illicit funds that attempt to enter our financial system as a result of external events. MAS recently issued a set of guidelines to financial institutions as a preventive measure to guard against any potential inflows of suspicious funds, following the conclusion of bilateral agreements between countries to resolve tax issues. The guidelines serve to remind our financial institutions that they have a key role to play in preserving the integrity of our financial system.
15. Trust players should be cognizant of global regulatory developments, and ensure that their internal policies and control procedures are kept updated. For example, licensed trust companies should ensure that their current systems and controls are aligned with the recently issued guidelines. Success in achieving effective regulation requires more than just MAS setting standards. The industry has a critical role to play by taking shared responsibility for and ownership of the regulatory objectives, as well as instituting high standards of governance and controls for itself.
Competency and Capacity Building
16. Third, competency and capacity building remain critical. Building a strong talent pipeline that possesses the relevant competencies with emphasis on ethics, is central in supporting the long term, sustainable growth of the trust services industry. We will need to work closely with the industry to do this. This can include efforts aimed at attracting talent into the industry and raising the competency level of new entrants. We can also look at conversion programmes to ensure new entrants are more job-ready when they enter the industry. The Institute of Banking and Finance (IBF), the agency responsible for financial sector competency development, will be engaging the industry to discuss these ideas.
17. In conclusion, as wealth in Asia continues to grow, the trust services industry will play an important role in wealth and succession planning. Amidst these growth opportunities, the stakeholders, including industry players and regulators, will need to focus on policies and best practices that support long term, sustainable growth. These include safeguarding the reputation and integrity of our financial centre, ensuring that trusts are not misused for illegitimate purposes.
18. Equally important is the need to build a strong supply of competent talent pool. We urge the industry to join us in “growing our own trees” and to support our efforts in encouraging training and advocating best, ethical practices.
19. With this, I wish everyone a fruitful discussion over these next two days. Thank you.
1 Only 5% of the corporate vehicles identified were trusts, appearing in only about 15 percent of the investigations. The Puppet Masters, How the Corrupt use Legal Structures to Hide Stolen Assets and What to Do About It, Stolen Asset Recovery Initiative, World Bank.