Published Date: 12 February 2018

Opening Address by Mr Lim Cheng Khai, Executive Director, Monetary Authority of Singapore, at the Investment Management Association of Singapore’s 5th Regulatory / Legal Roundup Forum on 9 February 2018

Mr Rodney Lim, IMAS Regulatory Committee Chairman,
Panel Speakers,
Members of IMAS,
Ladies and gentlemen,


1     Good afternoon and thank you for having me at this year’s IMAS Regulatory Forum again. As we get ready to welcome the Lunar New Year, it is an appropriate time for us to take stock of developments in 2017, and look forward to what is to come in the year ahead.

Taking Stock of 2017

2      2017 was a fairly hectic year in terms of global regulatory developments. I am sure many of you were kept busy with new rules abroad that have ramifications here. Similarly, MAS had an eventful schedule for the asset management industry. To highlight a few areas of work that will continue into 2018 -- we consulted on the draft requirements on best execution, liquidity risk management, the provision of digital advisory services, as well as the proposed framework for Singapore Variable Capital Companies, or S-VACC in short. Many of you gave us valuable feedback, which will help fine-tune our final rules. 

Guidelines on Liquidity Risk Management

3     Last year, I spoke about the impetus to strengthen fund resilience. Events over the past week have again demonstrated that the markets can turn in the blink of an eye. Although some cautious calm has returned after the early-week sell-down, we will not know for sure when and how the next correction will take place. In the medium to long term, MAS’ proposed guidance on liquidity risk management will help fund managers stay the course. On this, I would like to mention that we have intentionally taken a principles-based approach and steered away from being prescriptive about the specific practices that fund managers should adopt. Most respondents to the liquidity risk management consultation welcomed this principles-based approach. We will issue our response and the final guidelines in the next one or two months.

Approach to Regulation

4     Before I share about MAS’ regulatory priorities in 2018, let me speak a bit about our overall regulatory approach1. This gives a broader context of why we do what we do, and why we do it in a certain way. MAS seeks to establish sound regulation that allows well-managed risk-taking and innovation. At the same time, we strive to promote the stable and sustainable development of the financial services sector. We tighten the rules where necessary, and refine others where appropriate, to be business-friendly without compromising our supervisory objectives. The introduction of a separate regime for managers of venture capital funds, and the proposed framework for the provision of digital advisory services, are examples of such an approach. This principle of facilitating the growth of the industry, while ensuring its long term resilience, continues to underpin our priorities in 2018. Let me now go into some of the work ahead of us.

Singapore Variable Capital Company Framework

5     First on S-VACC that I mentioned earlier.  S-VACC is a dedicated corporate structure for investment funds. It will complement existing structures and have features on par with fund structures in other leading funds jurisdictions. Such features include the ability to use US GAAP accounting standards, an open-ended capital framework and an umbrella fund structure to house sub-funds. The assets and liabilities of the sub-funds would be segregated as well.

6     Through S-VACC, we seek to enhance Singapore’s attractiveness as a pan-Asian asset management centre. Today, Singapore is a key node for global investment flows into Asia. Our assets under management have expanded at 15% CAGR over the last 5 years, to more than S$2.7 trillion assets2 as at end 2016. Singapore also has a vibrant and diversified base of over 700 asset managers. This is supported by a strong cluster of ancillary services providers. Many global fund houses have chosen Singapore as their regional hub, and anchored their portfolio management, trading and research here.

7     We want to cement our position as a leading Asian hub for fund management. With S-VACC, fund managers will be able to consolidate their entire value chain in Singapore, by domiciling more of their funds here, alongside their fund management activities. Economies of scale can also be reaped through the consolidation of administrative functions at the umbrella fund level.

8     The inter-agency work on S-VACC is ongoing.  We are tying down the operational details of the policy and the tax framework. Other areas that we are working on include the legislative amendments and the development of a fund registration system.

9     The S-VACC initiative is complemented by efforts on two fronts. First, we are exploring means to enhance market access for Singapore-domiciled funds. This can be through bilateral mutual recognition of such funds, as well as multilateral passporting across regions. Both our fund managers and retail investors will benefit from the widened access to other markets. The second is a broader push to develop the funds ecosystem in Singapore. We hope to strengthen the network of our local fund managers, administrators, custodians and other ancillary services providers.

Culture and Conduct

10     Let me now turn to a topic that is at the heart of the financial sector – that of culture and conduct. In the quest for business growth, financial institutions, or FIs in short, need to keep at their core an ethos to do the right things, and do things right.

11     There is wide acknowledgement that poor culture was the root cause of the Global Financial Crisis. In the decade since the Crisis, the global financial industry continues to be plagued by cases of ethical failure. Some high profile examples include the mis-selling of the Payment Protection Insurance in the UK, the manipulation of market benchmarks, and the fraudulent creation of millions of accounts at Wells Fargo. There are also other misconduct that continue to surface, albeit of lower profiles. Market conduct regulators globally have hence stepped up their focus on potential malpractices that could cause investor harm3.

12     Closer to home, MAS’ 1MDB investigations uncovered instances of gross misconduct and unacceptable risk culture in two FIs. MAS withdrew their status as merchant banks as a result of the related breaches, and held several individuals to account.

13     Such ethical failures are rarely the result of one action or one person. Often, it is the culmination of a series of ill-disciplined, unchecked actions, over a period of time. A slip here, a compromise there. Without strong principles undergirding business decisions or the right tone from the top, it can be easy to veer into a chase after profits, at the expense of conscience and ethics.

14     The Edelman Trust Barometer4, which has been measuring public trust in people and institutions in the last 18 years, has found that financial services remains the least trusted sector globally in its latest survey. In fact, it has been rated this way since 2011.

15     This trust can and must be restored. Just as the decline in trust was due to misconduct of firms, the trust will be restored when FIs conduct their businesses in an ethical manner and commit to doing right by their customers.

16     In 2018 and beyond, MAS will engage FIs, including asset managers, to understand how they embed the desired conduct and culture in their day-to-day decision-making and operations. We will start with the larger managers. We will look beyond compliance frameworks to assess if the manager has embedded a sound “risk and ethics DNA” – one in which employees are aware of the risk boundaries; are being held accountable for their actions; and are empowered to speak up when they suspect or encounter malpractices. We also intend to share best practices, where appropriate, from our initial round of reviews. This can serve as a point of reference in this nascent field.

Asset Managers as Stewards of Good Corporate Governance

17     A sound corporate culture is evidenced by good conduct. As fund managers, this can be seen in the way you structure products, carry out your investments and deal with customers. Fund managers also play a larger role in the economy as key investors and asset owners. One area in which you can exert an important influence is corporate governance. By placing emphasis on good corporate governance in your portfolio companies, you can help to raise the standards across the industry, and enhance investor returns. In fact, several studies, including one by Deloitte and Nyenrode, point to a clear link between good governance and corporate performance.

18     The standards of corporate governance have evolved over time. Recently, the Corporate Governance Council in Singapore conducted a review of the Code of Corporate Governance to ensure that our standards can continue to support corporate performance and maintain investor confidence. The Council has proposed a few revisions and the recommendations are currently open for consultation. Allow me to briefly outline two key thrusts of the Council’s review. 

19     First, the Council has proposed to streamline the Code to focus on the key tenets of good corporate governance. The outcome is a more concise and less-prescriptive Code. This gives companies more flexibility to adopt corporate governance practices that are appropriate for their circumstances, business models and strategies.

20     Another recommendation by the Council is to strengthen the board quality of companies. This can be done by encouraging board renewal and enhancing board independence.

21     What role can fund managers play in making the revised Code a success? As the Code moves away from a cookie-cutter approach, the role of institutional shareholders like you, becomes more important in understanding their context and influencing their corporate governance practices. The consultation will close in mid-March. On behalf of the Council, we also welcome your views on the proposed changes to the Code.
Technology Risk Management
22      Other than the themes of culture and corporate governance, cyber security remains an important area of focus for MAS. The ASEAN digital economy is booming. A report by Google and Temasek5 estimates that South-East Asia’s digital market would grow from US$50 billion in 2017 to more than US$200 billion by 2025. Opportunities are immense. But cyber risks are also mounting, and they are getting increasingly complex. FIs must review their operations and processes regularly to make sure that their cyber defences remain robust.

23     On our part, MAS is reviewing the Technology Risk Management Guidelines to keep them current. As part of this refresh, we will be providing more specific guidance on areas such as cyber security operations, surveillance, assessment and exercises. In addition, we intend to set out risk management principles that are relevant to new technologies such as open application programming interfaces, cloud and virtualisation.

24     Where fund managers rely heavily on technology to generate trading strategies, manage clients’ portfolios or distribute your products, we would expect you to level up and ensure that your technology and cyber-security measures are effective for your business models.   

Ongoing Engagement with the Industry

25     I have spoken much about some of the work that we are doing, and the emphasis on feedback and engagement with you. This is an important area as we seek to formulate rules that are relevant, robust and risk-appropriate for the industry. In the coming months, we intend to reach out to more of you – on the issues of the day, what needs to be done, and what can be done better. I look forward to our continued engagement.


26     Let me close. The asset management industry is a key pillar in our financial services sector. It channels capital into industries and projects that power the real economy, creates good jobs for Singaporeans, and help individuals meet their financial goals.

27     The prospects of the industry remain bright, but challenges are also abound. We aim to set the right foundation with our regulatory priorities in 2018, to enable you to seize the opportunities and navigate the risks and challenges. With your commitment to imbue the right corporate culture and values, partner MAS to raise industry standards and keep up with emerging risks and threats, I am confident that the local asset management industry will be on a strong and resilient footing when we next gather for this forum. 

28     Thank you.

1 MAS Monograph – Tenets of Effective Regulation (852.4 KB)

2 2016 Singapore Asset Management Survey (1.13 MB)

3 For example, some regulators such as the UK Financial Conduct Authority, the European Securities and Markets Authority and the Financial Supervisory Authority of Norway, have started to focus on funds that charge active management fees but closely hug the benchmark in terms of their returns. The concern is over mis-selling and disadvantaging investors who are paying higher fees for active management.

4 Edelman Trust Barometer, 2018

5 Source: e-conomy SEA, Unlocking the $200 Billion Digital Opportunity in Southeast Asia, Google & Temasek, 2016