Published Date: 27 September 2019

“Untangling the Gordian Knot” – Keynote Address by Mr Paul Yuen, General Counsel, Monetary Authority of Singapore, at Singapore Trustees Association Annual Conference 2019, on 27 September 2019

Mr Edmund Leow, SC, President of the Singapore Trustees Association

Distinguished guests, ladies and gentlemen, good morning.

1.    It is a pleasure for me to join you at this year’s Singapore Trustees Association (“STA”) Annual Conference. This year, the organisers have titled the conference “Trustees and the Gordian Knot of Regulations”.

2.    According to the legend traced to the life of Alexander the Great, he who could untie the Gordian Knot would be the ruler of all of Asia. The only problem was that the Gordian Knot was believed to be the most complex knot ever tied. As one Roman historian described, it was “several knots all so tightly entangled that it was impossible to see how they were fastened”.

3.    Amidst global regulatory proliferation in the past few years and the regulatory developments in the wealth management industry, some may equate the challenges of navigating within the industry with the attempts to untie the Gordian knot. We have indeed witnessed major regulatory reform efforts in the past decade, and regulatory initiatives even within the past few years. These include:

(a) tightening of anti-money laundering and counter-financing of terrorism requirements (or AML/CFT in short);

(b) new transfer pricing rules and guidelines for Singapore taxpayers; and

(c) the introduction of the Common Reporting Standard and automatic exchange of information (“AEOI”) obligations. 

4.     As an open economy and a financial centre that serves domestic and international constituents, we will have to adapt and respond to global developments. Beyond this, the industry can expect other regulatory and supervisory efforts by MAS to strengthen and enhance our financial industry and the value proposition of our financial centre.

Singapore as a Centre of Regulatory Repute

5.     The purpose of regulation is to promote certainty and confidence in the system. Singapore’s robust regulatory and corporate governance framework has enabled the trust industry to emerge better and stronger, especially in the wake of international scandals that we have witnessed just a few years ago. Let me mention a few indicators:

  • Singapore’s asset management industry has been growing healthily, with AUM rising by 5.4% to stand at S$3.4 trillion as at end-2018. Over a 5-year period starting 2014, AUM grew by a compounded annual growth rate (“CAGR”) of 14%.
  • As a Global-Asia gateway for asset managers and investors, most of our AUM is sourced from outside Singapore.
  • Singapore’s assets under administration and trusteeship have grown at CAGR of 12% per annum between 2014-2018 to reach S$392 billion in 2018.
  • The number of family offices in Singapore has quadrupled from 2016 to 2018.
  • Singapore was ranked 2nd in the 2018 Deloitte International Wealth Management Centre Rankings.

6.     Respondents to a 2018 study conducted by the Asian Private Banker pointed to our efficient regulatory framework as a major factor for selecting Singapore as their most preferred wealth management hub.

7.     The Panama and Paradise Papers precipitated a shift towards greater transparency by regulators, financial centres, and wealth management clients. As at August 2019, Singapore has established AEOI relationships with 88 jurisdictions. Globally, nearly 4,000 exchange relationships have been activated for the exchange of tax information under the AEOI framework. These arrangements have enhanced transparency, enabling the validation of trusts as vehicles for substantive legitimate economic activities.

8.     Let us not forget that the trust industry is built on reliability, professionalism and trust. For the trust industry to thrive, it must be seen as trustworthy. This “trust” is inherent in:

(a) a client’s trust in the service provider providing the trust services;

(b) market participants’ trust in one another, which would typically extend to other financial institutions, and even beyond jurisdictional borders; and

(c) at a more macro-level, clients’ trust in the ecosystem and the proper functioning of the overall market environment.

9.     Trust is founded on rules, standards and practices that promote certainty and transparency. Trust grows when these are effectively implemented and upheld.  Let me mention two areas where we have devoted effort to build trust.

Addressing Money laundering and Terrorism Financing (“ML/TF”) Risks

10.    The first relates to our AML/CFT efforts. With evolving typologies and increasing complexities of financial crimes, trust structures can potentially be misused by criminals to mask and obscure their activities and illicit proceeds.

11.    This is an area that both MAS and the industry have a shared interest in – to preserve the integrity of our financial system. On MAS’ part, besides conducting regular inspections of trust companies, we have stepped up our engagements and collaborations with the industry.

12.    MAS’ AML/CFT inspections focus on three supervisory pillars:

(a) Governance – whether the board and senior management have effective oversight of ML/TF risks and are setting the right tone from the top;

(b) Risk awareness – whether the management and its staff understand the risks, as well as demonstrate individual and collective responsibility in addressing these risks appropriately; and

(c) Execution – whether the firm puts in place and implements effective AML/CFT controls to mitigate ML/TF risks.

13.    MAS has been leveraging our data analytics capabilities (such as network analysis) to help identify suspicious networks and unusual transaction patterns that warrant closer scrutiny. This enables MAS to focus our supervisory efforts on higher risk areas. 

14.    MAS’ supervisory expectations and sound practices observed during our inspections are thereafter shared with the industry. For instance, MAS published a guidance paper earlier this year on Enhancing AML/CFT Frameworks and Controls in the Capital Markets sector, which sets out broad ranging issues noted in the industry. 

15.    We intend to continue our focus on the trust sector and issue more guidance papers in the coming year. Our objective is to provide clarity and certainty in our regulations, particularly in the area of AML/CFT.

Culture and Conduct

16.    While regulations can influence behaviour, we hope to transform the culture and conduct in our industry – where participants take an interest in doing what is right and ethical, beyond mechanistic compliance with the law, and where financial institutions incentivise good behaviour. To this end, MAS has begun emphasising more on culture and conduct.

17.    Culture encompasses shared values, attitudes, behaviour and norms.

  • Culture shapes decisions and influences conduct.
  • A culture that values integrity and fair dealing will reduce the likelihood of misconduct.
  • Developing a sound organisational culture is an effective way to address the potential for misconduct.

18.    For this reason, there has been increased global recognition of the importance of culture. For example, the Financial Stability Board, as part of its Workplan on Measures to Reduce Misconduct, developed a toolkit aimed at helping firms and regulators mitigate the culture drivers of misconduct.

19.    MAS has adopted a three-pronged approach to foster sound culture and conduct:

(a) Promote and cultivate;

(b) Monitor and assess; and

(c) Enforce and deter.

20.    On the first prong, we hope to promote and cultivate a culture of trust and ethics through regular engagement with firms, promulgation of best practices, and collaborative efforts to promote sound industry norms.

21.    On the second prong, MAS will look to monitor and assess both the “hardware” and “software” of firms – the hardware being a firm’s frameworks, policies and procedures, the software being a firm’s values, behaviour and attitudes. Through our regular off-site supervision and on-site inspections, we intend to monitor and assess by:

(a) evaluating whether the firm’s culture incentivises the right behaviour;

(b) assessing whether risk and control functions are sufficiently empowered; and

(c) gauging whether incentive structures promote ethical behaviour and responsible risk-taking.

22.    Finally, where there are lapses, misconduct, or regulatory breaches, MAS has taken, and will continue to take, the appropriate supervisory or enforcement actions.

23.    This approach recognises that good culture results from effective supervisory efforts by the regulator, as well as the internal leadership and self-discipline within firms. It recognises that firms, their Boards, senior management, employees, and MAS all are collective stakeholders in this culture and conduct agenda.

24.    It is not our intention to prescribe a “one size fits all” approach as each firm’s culture, depending on its goals, strategies, and business model, will be different. The primary responsibility lies with the firm and each firm is encouraged to define a sound culture and conduct that is appropriate to its own circumstances. We will be publishing an information paper with details on some positive examples on culture and conduct gleaned from the industry.

Collaboration with STA Members

25.    As a regulator with a wide mandate that includes the supervision and development of the financial sector, we encourage and support enterprise and innovation, even as we advocate high standards of governance and practices. We recognise the limitations of our perspectives. We are also cognisant of the perils of overregulation and how it can cripple business or become barriers too high for entry. That is why we continually encourage two-way dialogues with industry participants, which include industry associations such as STA.

26.    MAS has held engagement sessions with STA and some licensed trust companies earlier this year. Public-private collaboration in priority areas informs the industry of MAS’ concerns and expectations whilst keeping MAS abreast of the industry’s interests and practices.

27.    One specific area that the STA is working on with several trust players relates to the mitigation measures that licensed trust companies can adopt to address the ML/TF risks posed by complex trust structures. An industry working group has been established. The insights from the working group’s discussions will be shared with the wider trust industry through an industry information paper.

28.    I would also like to take this opportunity to commend STA and industry players for taking this initiative to enhance practices in the trust industry. 

29.    Another area where we have responded to industry feedback is data collection. We understand that significant amounts of time and resources are expended by firms to produce data requested. As such, we are transforming our data collection approach to ensure that data collected is managed and used effectively, and that firms need not submit the same data to MAS twice.

30.    With an established membership base and long history, STA is well-placed to shape industry standards and practices. Education of the trust industry is one specific area that STA has considerable influence in. STA has at conferences such as this provided high-quality discussions and first-rate sharing among stakeholders in the trust industry. STA can continue bolstering education amongst trust professionals and practitioners in not just technical expertise but also any key areas of interests and concern. The discussions from today’s agenda will undoubtedly be useful in providing insights into some of the recent key developments in the trust industry.

31.    Ultimately, Singapore’s trust industry can remain resilient in the face of heightened global uncertainty if we work together to maintain trust and reliability. That would require the collective efforts by all parties to raise the standards in the trust industry.

32.    MAS is committed to maintaining open communication channels with the industry and other stakeholders to discuss matters of mutual interest and concern. It is through such interactions that we can work together to untangle any problem or challenge that the industry may face – Gordian knot or otherwise – and co-create standards and solutions that facilitate purposeful and sustainable growth in the trust industry.

33.    With that, I wish you a fruitful and meaningful conference.