Hansard, 2009-01-19

Under the provisions of clause 2(d) of Article 46 of the Constitution of the Republic of Singapore, the following Members have been granted permission to be or to remain absent from sittings of Parliament (or any Committee of Parliament to which they have been appointed) for the periods stated: Name From (2008/2009) To (2008/2009) Dr Muhammad Faishal Ibrahim 21 Nov 23 Nov 12 Dec 16 Dec 15 Jan 15 Jan Dr Lam Pin Min 23 Nov 28 Nov 13 Dec 23 Dec Mr Low Thia Khiang 23 Nov 09 Dec Dr Ng Eng Hen 24 Nov 27 Nov 08 Dec 16 Dec Assoc. Prof. Koo Tsai Kee 25 Nov 25 Nov 10 Dec 12 Dec 19 Dec 28 Dec 19 Jan 22 Jan Dr Lee Boon Yang 27 Nov 29 Nov 20 Dec 31 Dec RAdm [NS] Lui Tuck Yew 28 Nov 05 Dec Mr Hawazi Daipi 30 Nov 07 Dec 14 Dec 19 Dec Mr K Shanmugam 01 Dec 04 Dec 07 Jan 09 Jan Mr Liang Eng Hwa 02 Dec 14 Dec Mr Teo Ser Luck 02 Dec 06 Dec 18 Dec 25 Dec 11 Jan 17 Jan Mr Sam Tan Chin Siong 04 Dec 11 Dec Mr Tharman Shanmugaratnam 04 Dec 07 Dec 18 Dec 27 Dec Mr Baey Yam Keng 06 Dec 18 Dec Miss Penny Low 06 Dec 12 Dec 26 Jan 03 Feb 27 Mar 10 Apr 26 Oct 03 Nov Dr Vivian Balakrishnan 07 Dec 21 Dec Column: 1035Assoc. Prof. Dr Yaacob Ibrahim 07 Dec 11 Dec Dr Teo Ho Pin 08 Dec 11 Dec 12 Jan 16 Jan Mr George Yong-Boon Yeo 09 Dec 11 Dec 12 Dec 12 Dec 14 Dec 16 Dec 21 Dec 31 Dec 09 Jan 12 Jan 18 Jan 21 Jan Mr Zainul Abidin Rasheed 09 Dec 12 Dec 14 Dec 16 Dec 20 Dec 24 Dec 10 Jan 14 Jan Mr Arthur Fong 11 Dec 13 Dec Dr Ong Seh Hong 11 Dec 12 Dec 12 Jan 16 Jan Mr Seah Kian Peng 12 Dec 19 Dec Mr Charles Chong 13 Dec 17 Dec 05 Jan 10 Jan Mdm Cynthia Phua 13 Dec 24 Dec Mrs Lim Hwee Hua 13 Dec 14 Dec 15 Dec 16 Dec 16 Dec 26 Dec Mr Gan Kim Yong 14 Dec 19 Dec Mr Lee Hsien Loong 14 Dec 16 Dec 20 Dec 28 Dec Mr Yeo Guat Kwang 14 Dec 19 Dec 21 Dec 30 Dec Ms Grace Fu Hai Yien 15 Dec 28 Dec Mr Cedric Foo Chee Keng 16 Dec 21 Dec 24 Dec 31 Dec 14 Jan 17 Jan 19 Jan 21 Jan Dr Ahmad Mohd Magad 18 Dec 21 Dec 04 Jan 07 Jan 15 Jan 18 Jan Mr Wong Kan Seng 20 Dec 27 Dec Ms Ellen Lee 22 Dec 29 Dec Mr Masagos Zulkifli B M M 23 Dec 28 Dec Mrs Yu-Foo Yee Shoon 23 Dec 07 Jan Assoc. Prof. Kalyani K Mehta 25 Dec 11 Jan Mr Lim Hng Kiang 25 Dec 27 Dec Ms Jessica Tan Soon Neo 27 Dec 31 Dec 04 Feb 06 Feb Column: 1036Mr S Iswaran 07 Jan 09 Jan Mr Lim Swee Say 09 Jan 12 Jan Mr Chan Soo Sen 12 Jan 16 Jan 12 Feb 14 Feb Dr Lim Wee Kiak 12 Jan 14 Jan Mr Michael Palmer 12 Jan 16 Jan Prof. S Jayakumar 12 Jan 13 Jan Mr Ang Mong Seng 14 Jan 18 Jan Mdm Ho Geok Choo 14 Jan 15 Jan Mr Wee Siew Kim 15 Jan 18 Jan 19 Feb 21 Feb Ms Eunice Elizabeth Olsen 19 Jan 19 Jan Mr Seng Han Thong 19 Jan 19 Jan Prof. Thio Li-ann 19 Jan 31 Jan Mr Khaw Boon Wan 24 Jan 27 Jan Er Lee Bee Wah 24 Jan 27 Jan 04 Apr 05 Apr 30 May 02 Jun 03 Jun 06 Jun 13 Jun 15 Jun 19 Jun 27 Jun 05 Sep 09 Sep 19 Sep 22 Sep 26 Dec 29 Dec Mr Teo Chee Hean 06 Feb 09 Feb Ms Irene Ng Phek Hoong 16 Feb 03 Mar Dr Fatimah Lateef 22 Feb 25 Feb 22 Mar 03 Apr 13 Apr 26 Apr 10 May 17 May 04 Aug 05 Aug 24 Nov 30 Nov

Assoc. Prof. Dr Yaacob Ibrahim

Mr S Iswaran

ABDULLAH TARMUGI Speaker Parliament of Singapore

The following Bills were assented to by the President of the Republic of Singapore on the date stated:

4th December,2008 (1) Administration of Muslim Law (Amendment) Bill (2) Statutes (Miscellaneous Amendments) (No.2) Bill (3) Property Tax (Amendment) Bill (4) Good And Services Tax (Amendment) Bill (5) Stamp Duties (Amendment) Bill (6) Income Tax (Amendment) Bill (7) Limited Partnerships Bill (8) Employment (Amendment) Bill (9) Moneylenders Bill

ABDULLAH TARMUGI Speaker Parliament of Singapore

[Mr Speaker in the Chair]

1. Mr Seah Kian Peng asked the Minister for Trade and Industry if he will provide an update on the Government's $2.3 billion loan support package for businesses, specifically (i) how many applications have been received and what is the approval rate; (ii) whether the loan schemes are meeting the objectives intended and are up to expectations; and (iii) what are the feedback from businesses.

2. Mr Zaqy Mohamad asked the Minister for Trade and Industry (a) how does his Ministry plan to work with banks

to relax the lending criteria for loans under the Government's $2.3 billion loan support package for businesses; (b) whether there are plans by the Government to (i) set conditions on the disbursement of the package by the banks or (ii) lend to enterprises directly; and (c) what are his Ministry's KPIs on the disbursement of the package to measure the success of this initiative.

Sir, can I have your permission to take Question Nos. 1 and 2 together?

Yes.

Mr Speaker, Sir, let me first set out the broader context against which the Government's loan support schemes exist.

We are facing a broad-based global economic downturn and the Singapore economy is in a recession. Loans may decline further in the coming months. This happened during the Asian Financial Crisis and is likely to happen now as well. Demand for loans will moderate with businesses scaling back investment and expansion plans. Banks will become more cautious with business prospects of borrowers turning more uncertain.

There have also been knock-on effects here from the global financial turmoil. Bond and equity market issuances have thinned substantially, and the foreign banks operating in Singapore, which collectively make up more than 40% of our domestic credit market, were affected by the crisis in the US and Europe. The actions taken by governments and central banks in Europe and the US to recapitalise bank and guarantee bank borrowings have improved confidence in the international financial system and that of individual banks, although there remain significant stresses and uncertainties ahead. Our local banks, on the other hand, are not

facing a capital or liquidity crunch and their capital adequacy ratios more than meet MAS' requirements. Overall, the interbank market in Singapore continues to function normally; commercial cost-of-funds is low and our financial system remains fundamentally sound.

Our Government's loan schemes aim to complement commercial lending by helping viable but riskier companies access credit. We work through the banking system by sharing a sizable portion of the default risk. These schemes have been in place for many years, and loan commitments had increased even before additional enhancements took effect in December 2008. They rose by around 50% to over $1.0 billion in 2008, compared to $680 million in 2007.

Against a backdrop of economic downturn and greater risk aversion, we moved pre-emptively in December to further enhance our loan schemes. We increased government risk sharing from 50% to 80%, raising loan quantum limits, introducing a Bridging Loan Programme (BLP) for working capital needs, and reducing interest rates by 1.25%.

These enhancements have been in place for less than two months. It is too early to assess their effectiveness but preliminary indications are promising. Participating banks have reported an increase in applications with almost 500 applications submitted in December alone. Many of these applications are still being processed by the banks. Approved loans increased by 30% in December 2008 compared to December 2007 (from $62 million to $80 million). Working capital loans increased while asset based loans saw a dip. This is not unexpected, with businesses cutting back on fixed asset investments amidst the unfavourable economic climate.

Our next challenge is to heighten awareness of these schemes and assist SMEs in applying for them. Many SMEs may be unfamiliar with the process. SPRING has therefore organised a pipeline of financing seminars in collaboration with the business chambers and industry associations. To facilitate SME loan applications, SPRING, together with our five Enterprise Development Centres and the Singapore Business Federation, has just launched the Financial Facilitator Programme. Under this programme, the six centres will provide financial advisors to advise SMEs on financing strategies and loan applications. SMEs can seek professional financial advice at these centres at no charge. Companies requiring assistance should approach the EDCs for help.

While efforts are being made to help support access to business credit, companies still have the prime responsibility to furnish the relevant data for their applications and to show that their businesses are viable and bankable. It is only natural, in any recession, that companies seeking loans are questioned in more detail and their applications are scrutinised.

Member Mr Zaqy Mohamed has asked how MTI intends to work with banks to relax their lending criteria for the financing schemes, and whether we set conditions on the disbursement of such loans by the banks. We do not have disbursement requirements nor do we influence the bank's risk assessment. It is important that the banks do the proper due diligence in ensuring that loans are extended to companies with viable business propositions. This is also why we do not set utilisation targets.

The Government is also not in a good position to lend to enterprises directly. We do not have the expertise and are not well placed to do so. Credit risk assessment is best done by the professionals in our

financial institutions, who have the necessary domain knowledge. Our preferred approach is to share a significant portion of the financial institutions' risks, up to 80%, and defray some of their administrative costs. This not only encourages more lending, but also ensures that our public funds go to deserving companies.

Government loans, therefore, play a targeted role; they are not intended to replace commercial lending. Our primary objective remains to assist viable but riskier companies access credit which they would otherwise be unable to get at reasonable rates during this period.

Since implementation of the enhancements, feedback from the business community has been positive. They have welcomed the move to increase risk sharing by the Government, the increased quantums as well as reduced interest rates. There has been continued feedback on the need for working capital and difficulties in securing such loans. We are assessing this and will revise our schemes in line with the situation.

Sir, I thank the Minister for his answers. I have the following supplementary questions.

First, he mentioned that about $80 million was approved. I want to know how much this constitutes as a percentage of the total amount that was applied for.

My second supplementary question concerns the process by which businesses need to submit their applications. I hope it can be further simplified and that businesses do not need to submit very voluminous type of applications and very complicated business plans to support their applications.

Related to this, I would also like to ask what is the average time taken to evaluate and process these applications, because time is of the essence for these credit-starved businesses, and we certainly do not want a case that when approval is given, it is a day late for the companies.

My last supplementary question is to ask the Minister whether he is aware that some financial institutions have not renewed the credit facility on maturity. While this may not be seen as a cut back of facilities, I think the impact can be quite significant. I would like the Minister's response on this.

Sir, I thank the Member for his supplementary questions.

First of all, let me explain, as I did in my answer earlier, that the whole credit situation is a very diverse situation. Essentially, the commercial loan constitutes about $160 billion, but a large proportion of this is really to the bigger companies – the multi-nationals and the mid-sized companies. The SMEs' share constitutes about $40 billion. Even within these large amounts, we also have to look at the sectoral composition of these loans. Many of these loans are for development and construction, and many of these, in fact, grew very significantly during the bull run in the last two to three years, and that has increased the size of the loan market.

The Government's share of this market at $1 billion is not a very significant share. Really, we have to depend on our financial system. As I said, by and large, our financial system remains intact. But we must expect that during a period of recession that the banks themselves will be more stringent in their lending criteria and in their scrutiny, and there will be some cut back in the loans.

During the times when credit was reasonably easy, SPRING did not monitor the ratio of applications versus approvals. We only took in the data from the banks based on loans approved. So I do not have the data comparing the past history of the success of approvals. Now, of course, we are collecting this data because it is something that we are sensitive to.

On the process, we agree that it should be as simplified as possible, and we are working together with the participating financial institutions to make sure that the process is simplified. And, similarly, time taken should not be unduly long. But I must add a word of caution. It depends really on the borrower's level of relationship with the banks. If he has already built up a very long-standing relationship with the bank, the relationship manager knows his business very well. So when he comes back to renew or to extend his loan or to have this new credit facility that has been enhanced, it is not a problem. That was the feedback that we got. For some of the SMEs that have taken advantage of the Government's schemes – the LEFS, LIS, micro-loan, etc – and they have built up this relationship with their banks, when we expanded the scheme and they renewed or expanded the scheme with the banks, there was very little problem. The problem comes when a borrower is building a new relationship with the bank and he has to explain to the bank the nature of his business and his business plans, and the loan officer must develop a good understanding of his operations and also a good assessment of his prospects going forward. So we cannot dictate time. This must be left to the banks and also to the nature of the relationship between the applicant and the bank.

The last question is on the renewal of credit facilities. Anecdotally, the evidence

of the feedback given to us is that many of the banks in Singapore, both the local banks and the foreign banks, targeted SMEs in a significant way in the last few years. They have built up the loan portfolios for the SMEs. So we are starting off from a position of greater strength than, say, five years ago. Five years ago, I think the penetration of the access of credit by our SMEs in the banking system was less. This time round, I think we have a better base to work with.

At the same time, it also means that when some foreign banks, for example, have to cut back on the credit facilities because of instructions from their head office, the impact now reaches out to some of our SMEs who previously had not had the access through the foreign banks.

Another feedback we got is that some of our SMEs, in fact, work through both local and foreign banks. And the typical approach is that their credit facilities with the local banks are secured on very concrete collateral, whereas their relationship with the foreign banks is based on accounts receivable. So when situations get tighter, that is, in fact, the first facility that gets cut.

These are some of the feedback that we are getting and we are working together with the various banks to see how we can make the system better and still ensure credit is available to our companies.

Sir, since we are administering the schemes through the financial institutions, can I ask the Minister whether they have seen any of the financial institutions which have withdrawn from some of the Government schemes, whether local or foreign?

Sir, we have 14 financial institutions participating in our

various schemes. In fact, SPRING is reaching out to more financial institutions to get them into the net. As I said, the level of participation by the 14 financial institutions vary. Some are very active, commanding a significant part of the market share – 20%-25%. Others are very small players with about 1%-2% of market share.

Sir, in view of the fact that many banks may be averse to lending at such times and that many SMEs are in urgent need of working capital, will the Minister not reconsider administering this loan support package directly to businesses in order to get better results at such a crucial time?

Sir, as I explained in my reply earlier, building up a relationship with the borrower takes a lot of time, a lot of effort and a good understanding of the business. Therefore, it is not something that we can do overnight. Obviously, SPRING or IE Singapore is not geared up to do this. And this is why, over the years, we have always worked through the banks – through the loan officers, through the relationship managers who have a very intimate knowledge of the borrowers' needs

as well as competency and domain knowledge of what is involved in credit assessment. So it is not possible for us in a short time or is it wise for us to start up a lending operation within SPRING or IE Singapore.

I would like to ask the Minister, in view of the fact that small businesses and new start-ups will become sizeable enough to be a pillar of our economy, other than the existing $2.3 billion loan support package, what other programmes are there to augment these SMEs and start-ups in this economic downturn.

Mr Lim Hng Kiang: Mr Speaker, Sir, we have an entirely different eco-system for helping start-ups with SEED and various

components of the venture capital market and helping a company through the various stages of growth. In the November announcement by the Senior Minister of State, Mr Iswaran, we also enhanced that part of the eco-system for start-ups.

3. Mdm Halimah Yacob asked the Minister for Trade and Industry (a) what is the employment forecast for 2009; (b) which are the growth sectors; and (c) which sectors will be worst affected by the global economic crisis.

Mr Speaker, Sir, the global economic environment has deteriorated significantly since the middle of last year. The Singapore economy has entered a recession. We have already seen three consecutive quarters of negative quarter-on-quarter GDP growth and two consecutive quarters of negative year-on-year GDP growth.

The economic downturn has spread to all the key sectors of our economy. The sectors that have been hardest hit by the crisis are those most exposed to the external economic environment, such as manufacturing, tourism, transport and wholesale trade, as well as sentiment-sensitive sectors such as financial services.

Overall, non-oil domestic exports fell by 7.9% last year. The fall was especially steep in the last few months of 2008. Non-oil domestic exports declined by 20.8% in December. Container throughput and sea cargo handled in December contracted by 13% and 18% respectively.

This contraction in exports is being experienced by many other regional economies too. For instance, exports from Taiwan and South Korea declined by 40% and 17% respectively in December, while Malaysia saw a 5% decline in its exports in November.

The outlook for 2009 is a difficult year. Consumer demand in our key export markets, such as the US and Europe, will remain weak. Our manufacturing sector is therefore likely to continue facing a slowdown this year. Regional trade will also slow down further, which will drag down the sectors relating to transport and wholesale trade.

The financial services sector will also experience a sharp slowdown because of the impact of the financial crisis. Although our banks have largely escaped the direct impact of the crisis because of their low levels of exposure to distressed assets, the crisis has hit the sentiment-driven segments of the financial sector which include the trading of stocks, shares and bonds, foreign exchange trading as well as fund management activities.

The domestically-oriented sectors of our economy will also experience moderation in growth. Weaker consumer sentiments among Singaporeans have affected the retail sector and the property market. Retailers and restaurants are seeing slower business as consumers are reining in discretionary spending. Private home prices fell for a second consecutive quarter at the end of 2008 according to advance estimates from the URA, hurt by a drop in investor sentiments amid the growing economic downturn.

However, there are some sectors which are still showing positive growth. The construction sector and supporting activities, such as architectural and engineering services, have benefited from a strong pipeline of projects that were awarded in the past two years. The information and communications sector has also been resilient, as it is supported by major public sector IT initiatives and growth in international call volumes. The

healthcare and education sectors are also showing steady growth. However, these sectors collectively make up slightly less than 10% of our economy, and their growth will not be able to compensate for the declines in the other sectors.

Another area which gives us some optimism is the pipeline of investments. I think some of you may have heard EDB's announcement just this morning about the investment commitments last year and their projections for this year.

Mdm Halimah has asked about the employment outlook for 2009. The strong employment growth which we have enjoyed in recent years will ease significantly. Unemployment and retrenchments will rise. The labour market has already softened in the second half of 2008. We expect employment growth to further weaken and job losses to increase, in tandem with the economic slowdown.

However, new jobs will still be generated from the growth sectors. For example, the construction sector is likely to continue hiring this year. In addition, the healthcare sector will continue to grow over the next two years with the development of healthcare facilities, such as the opening of the new Khoo Teck Puat Hospital. The civil service will also continue hiring: the Ministry of Education recently announced that it will be recruiting more than 7,000 teachers and support staff in 2009, while the Ministry of Home Affairs is looking to fill more than 1,000 vacancies across the various Home Team departments. In the tourism sector, the Integrated Resorts have already started their hiring efforts and are expected to provide more than 20,000 job opportunities over the next few years. And I have also referred to the EDB's announcement this year. EDB estimates that with the new investments coming on-stream, becoming operational this year, these will generate about 6,000 new jobs.

In closing, let me assure Mdm Halimah that we are closely monitoring the economy to identify the sectors vulnerable to retrenchments. In collaboration with our tripartite partners, the Government has already implemented the $600 million SPUR programme to help our workers retrain and upgrade their skills, so as to remain employable and employed during and beyond the economic downturn.

I would like to ask the Minister – he mentioned some figures – what is the total number of jobs expected to be created this year. I would also like to ask the Minister, of those numbers of jobs created, how many of these jobs will be for PMETs and how many for non-PMETs. And what is the expected unemployment rate for this year?

I hope Members will appreciate that during this period of great uncertainty, it is very hard for us to be making these projections with a great deal of uncertainty. What we have done is to develop a bottoms-up approach, look at all the different sectors and identify the job opportunities in each sector and also to develop a programme to see how Singaporeans can be trained or retrained to fit into these sectors. So, in my answers, I have mentioned several of these sectors and, if you add them up, I think this will give Members a general feel of what is available in those sectors that we have identified. Of course, in the rest of the economy, there will be some growth, some job creation as well as some retrenchments and cut back. I think the situation is evolving and will become clearer over time.

Sir, the Minister painted a very grim picture of the economy with Singapore entering a recession. Can I ask the Minister for his assessment on when he thinks Singapore can get out of the

recession? We are aware that much depends on the global situation. But can I ask the Minister for his sense of the economic projection?

I was about to use the same answer as I had just now, that we are facing quite an uncertain future. What I can say is that the recession that we are facing now is quite different from the recession that we faced before. If you look back, in 1985 and 1986, that recession was because of our cost structure becoming uncompetitive. The main cause was domestic, and when we made the changes and righted ourselves, I think there was a rebound. In 1998, it was a financial crisis in Asia. The rest of the world managed to grow reasonably well although we were quite close to the epicentre of the Asian financial crisis and therefore sectors like our financial services and our share market was very adversely affected, but the rest of the economy was less affected. So when the Asian financial crisis was resolved, the rest of the economy pulled out and we rebounded quite quickly. Similarly for the 2001 recession, that was largely an IT bubble and also a major correction in world stock market. 2003 was also a very narrow recession created because of SARS. What we are facing today is actually quite unprecedented. First of all, it is a global downturn. It is a huge de-leveraging process. There have been global imbalances built up over the years and now it is righting itself. So the whole external demand has declined sharply. There is very little we can do to try and mitigate the impact of such a major decline in the external demand. Secondly, the global financial markets are affected. As you know, financial systems are crucial to the workings of a global economy. So I think these two characteristics make this a very sharp recession. The positive thing is that, of course, in terms of the financial crisis, we are further away from the epicentre. The epicentre is in US and Europe, not in Asia.

But, nonetheless, we are facing the aftershocks and the repercussions of those difficulties. If you look at the reports that have come out, the consensus in most reports among economists and analysts is that the most optimistic forecast is for the US and the European economies to recover only in the second half of this year. So we cannot expect to see anything earlier than that. And the second thing we ought to note is that most analysts do not expect a sharp recovery, they expect a very slow recovery.

Mdm Halimah, last question.

I do appreciate the difficulties because of the great uncertainty and that you depend a lot on the bottoms-up information on the number of jobs created. But can I ask the Minister, what is the base of coordination of all the bottoms-up approach? What is the total number of jobs available, particularly there are some reports that new school leavers and university graduates will be hard put in getting jobs? What is his comment on that? I would also appreciate his comment on the other question about the number of jobs that has been created for PMETs?

I would like to assure the House that we are monitoring this situation very closely – MTI, MOM and the various agencies, together with our tripartite partners, NTUC and the business chambers. Our approach has been a very pragmatic one. We look at the different sectors. You will not see robust job growth in the same way that we had seen in the last three years. But there will still be a significant job growth, as I mentioned, in the various sectors, like tourism with the IRs. We also have a very strong pipeline of investments, and EDB is confident that these investments

will generate 6,000 jobs this year. So if you add it up, it is a significant number of jobs that will be sufficient to cater for new school leavers. They are definitely more than 30,000 jobs all in. But what we are not sure of is the retrenchments that will likely to take place in the existing economy and also the retraining requirements, as companies restructure and some companies have to cut back. We are very conscious of the difficulties faced by the PMETs, and I think we have got specific programmes to target this group of Singaporeans to enable them to retrain for the jobs that are available.

4. Mr Siew Kum Hong asked the Prime Minister (a) what was the average total annual remuneration for the year of 2008 (inclusive of all bonuses) for political appointment holders and civil servants whose remuneration is pegged to (i) MR4 benchmark and (ii) SR9 benchmark; and (b) what was the average amount of performance bonus paid to each of these groups, in terms of the number of months of salary and also in terms of the absolute monetary figure.

Mr Speaker, Sir, the norm total annual remuneration for the year 2008 for political appointment holders and civil servants whose remuneration is pegged to the MR4 benchmark was $1.92 million.

This figure includes the individual performance bonus and all other bonuses for a typical officer. The norm total remuneration for those pegged to the SR9 benchmark was $398,000.

At these senior levels, a significant proportion of the total annual salary

depends on the individual's performance and the performance of the economy. For an officer in the MR4 grade, the individual performance bonus quantum can range from zero to 14 months. A performance bonus of nine months was used to compute the 2008 norm salary package (of $1.92 million) for a typical officer on MR4. So nine months was the norm used to compute the salary for the benchmark comparison purposes. However, the actual amount awarded would vary with the officer's performance. In 2008, the actual performance bonus paid out for this grade ranged from six to 10 months, with an average payout of 8.33 months or $455,000.

For SR9, the individual performance bonus quantum can range from zero to 8.5 months, with 4.5 months used for computing the 2008 norm salary for a typical officer. In 2008, the actual performance bonus ranged from zero to 6.5 months, with an average payout of 4.82 months or $86,000.

The above figures are 2008 salaries. This year, we will see a drop in total annual salaries. In November 2008, the Government announced that salaries for political, judicial and statutory appointment holders and Administrative Officers will see a drop of up to 19% in 2009. Total annual salaries at the MR4 grade will fall by 18% to $1.57 million and salaries at the SR9 level will fall by 12% to $353,000.

With MTI's latest GDP growth estimate at 1.5% for last year, salaries for 2009 will see a further drop. The MR4 salary for 2009 will now be $1.54 million, a drop of 20% compared to 2008. Salaries at SR9 will now be $351,000, a drop of 12% compared to 2008. The 2009 salaries are, of course, projected salaries. As the salaries are linked to economic performance, the 2009 salaries may be subject to further adjustments, given the volatility of the economy.

As the Minister has pointed out, the salaries for 2009 will fall. However, these numbers remain unimaginably high to ordinary Singaporeans. Yet, a senior civil servant recently contributed an article in the Straits Times describing his family's five-week holiday in Paris which would have cost more than the 2007 average per capita GDP in Singapore ($53,000). It was the civil servant's own money, he has the prerogative to spend it as he sees fit. But in these times, writing about it in the national newspaper was unnecessarily provocative and unimaginably insensitive.

So my question is whether the Public Service has guidelines in place to ensure that senior civil servants conduct themselves appropriately and sensitively, and were they followed in this case?

Mr Speaker, Sir, what the civil servant in question, Mr Tan, does during his vacation leave is his private decision. However, I was disappointed with what he wrote in the Straits Times. The article showed a lack of sensitivity and was ill-judged. It struck a discordant note during the current difficult economic circumstances when it is especially important to show solidarity and empathy for Singaporeans who are facing uncertainties and hardship.

The Head of Civil Service has spoken to Mr Tan about this to make these points and asked Mr Tan to take note of the feedback and learn from this episode. The Head of Civil Service has followed up to write to Mr Tan to put the matter on the record.

5. Mr Lim Biow Chuan asked the Minister for Law whether there is any need to review Singapore's penal policy in

view of the statement in the latest issue of the Law Gazette by the President of the Law Society of Singapore, Mr Michael Hwang, that Singapore is sadly lacking a principled and transparent penal policy.

Sir, I thank Mr Lim for his question. Mr Hwang, the President of the Law Society, in his article in the Law Gazette asserts that detailed statistics on crime and punishment should be published and that not publishing such statistics has prevented social scientists from undertaking adequate research on the causes of crime and the effects of current penal policies on prisoners. And he says that this has resulted in our system being unprincipled, and rigorous regular research with full access to relevant information will help us decide on issues like the effectiveness of capital punishment.

I will deal with each of the three assertions.

About statistics not being published – this assertion is questionable for two reasons. First, Mr Hwang does not make clear what data (which would help in penal research) that he is referring to as not having been published. Second, law enforcement agencies such as the Singapore Police Force and Central Narcotics Bureau do publish crime and drug offence statistics regularly. Where there is public interest to be served, additional relevant information is collected and disseminated.

In addition, it should be noted that Home Team departments also undertake qualitative and quantitative research, often in collaboration with independent researchers, on topics relating to crime, punishment and criminal behaviour. Further, as a matter of practice, assistance is also given to researchers, including students, who wish to do

serious research and such research has been done. To suggest to that, there are inadequate published statistics and that that has prevented proper research is therefore quite untenable.

I will now deal with the second of his assertions – has a lack of statistics led to our penal system being unprincipled?

Since the basis of his assertion – that we do not publish statistics – is itself not clear, this further conclusion is equally questionable. Further, any objective analysis of our penal system will show that the system is based on sound practical philosophy and principles, which have been made clear several times.

While we take a tough stand on crime, we also believe strongly in compassion and rehabilitation. These principles underpin our approach to:

principles of prescribing punishment and sentencing;

treatment and rehabilitation of prisoners when they are in prison; and

reintegration of ex-offenders back into society.

Let me deal with punishment and sentencing. The Government's approach to prescribing punishments is a matter of public record. During the Second Reading (in 2007) of the amendments to the Penal Code, our approach was again restated clearly. In brief summary, these are:

the type and quantum of punishment should provide sufficient flexibility to the Courts to mete out an appropriate sentence in a particular case;

the prevalence of the offence;

the proportionality of the penalty to an offence, taking into account its seriousness; and

the relativity in punishment between related offences.

On sentencing, our Courts have set out the applicable principles. Our former Chief Justice, Mr Yong Pung How, had published over 882 judgments during his time on the Bench, several of which relate to criminal offences. Our current Chief Justice has been equally prolific. Subordinate Court judges publish Sentencing Practice in the Subordinate Courts, which is a sentencing guide, making accessible the sentencing approach for a wide range of offences. This approach is not based exclusively on either deterrence or retribution alone. Rather, the approach to sentencing an offender is to consider both these aspects, and also take into account other considerations such as potential for rehabilitation, suitability of the punishment for each individual offender and the nature of the offence committed.

Hence, both in prescribing punishments and sentencing offenders, much thought has been given to how justice can be best secured for each individual offender. The Government is also at present exploring Community Based Sentencing options, which will further equip our penal framework with the best tools to advance justice in each particular case.

Let me deal with treatment and rehabilitation of prisoners in prison. As stated earlier, we believe strongly in rehabilitation and we believe that that process should start even while the sentences are being served. Thus, during incarceration, inmates who are genuinely willing to change are given education, training and rehabilitative opportunities that will better help them reintegrate into society after their prison sentences.

Our focus on reintegration of ex-offenders back into society continues

after the prisoners are released. The Yellow Ribbon Project (YRP), set up to create awareness on giving second chances to deserving ex-offenders and generate acceptance of ex-offenders back into the community, has been widely lauded by international experts, and has received an honourable mention at the 2007 United Nations Grand Award. Coupled with the YRP was the setting up of a Yellow Ribbon Fund which contributes to the development and implementation of reintegration programmes for ex-offenders.

A key measure of the success of our rehabilitation and reintegration programmes is our recidivism rate, which is now one of the lowest in the world.

Another example of the successful rehabilitation and reintegration programmes for offenders is the Home Detention Scheme. Deserving inmates are released earlier, at the tail-end of their sentences and placed on electronic monitoring to work or study. Prisoners on Home Detention have lower recidivism rates compared to the general population.

Thus, far from being unprincipled, our penal philosophy has been carefully thought through and has been articulated publicly several times. Theoretical arguments on our penal policy, bereft of any reference to these key aspects in our system, may make for good sound bites. But they do not have any real merit. In evolving our policies, we take into account the views of parties involved in the administration of justice, including the courts, law enforcement agencies, civic interest groups, the legal profession, academia and the Law Society.

I will now deal with Mr Hwang's final assertion relating to capital punishment. His suggestion is that publication of detailed statistics will lead us to a possibly conclusive answer to the debate on capital punishment.

The debate on capital punishment, Sir, is not going to be settled on the basis of statistics. Leaving aside the fact that it is not clear, from what Mr Hwang says, as to what statistics are said to be lacking, I should point out that all capital punishment cases are matters of public record in Singapore and the media usually widely covers such cases. Each criminal case heard before a court is also a matter of public record.

On the issue of capital punishment itself, the reality is that there is no universal consensus on such punishment, and there is unlikely to be any such consensus, anytime soon. Serious and bitter debate on capital punishment has raged on in many countries. The philosophical and ideological chasms that separate the proponents and opponents of capital punishment are quite unbridgeable. Both sides marshal powerful arguments.

On an issue like this, the Government has to take a stand. And the Government believes that death penalty should be retained. A Straits Times survey conducted a few years ago reported that 95% of Singaporeans supported the retention of the death penalty.

Our firm position on crimes and the considerable benefits of such a stand to our society can be illustrated by reference to the drug situation. In a region where drug is a very serious problem, Singapore has kept the problem very much under control and is in fact almost unique in battling it successfully so far. Members know that in the last 15 years, the drug situation has been getting from bad to worse in many countries, both in this region, and in the world.

Why have we succeeded so far, when so many others have not? It is because we took a practical, hard headed approach to the problem and tackled it

decisively. In this context, the introduction of the death penalty for drug trafficking has, we believe, had the deterrent effect. There are no widely prevalent syndicated drug activities linked to organised crimes in Singapore, in contrast to the hierarchical and organised drug syndicates and cartels in various countries. As a result of our policies, thousands of young people have been saved from the drug menace.

Singaporeans appreciate the safe environment here. And the international community has taken note of our success in maintaining law and order. In 2008, the Institute for Management Development (IMD) World Competitiveness Yearbook ranked Singapore first in personal security and private property.

Sir, in closing, let me assure Members that our approach to penal policy is both principled and transparent. And, quite fundamentally, the approach has been shown to work, ensuring the safety and security of our citizens. We will continue to review our approach and ensure that it remains relevant and effective.

Sir, two supplementary questions for the Minister. Sir, I believe that in Mr Hwang's article regarding the statistics which he feels could be useful for our crime debate, he did allude to the fact that the Government was quite opaque when it comes to, for example, the ethnic composition of people in our penal institutions. In fact, in 2007, I filed a parliamentary question asking for this data, and I was told by the Ministry of Home Affairs that the data is kept but they are unable to reveal it publicly. This is actually very different from the practice in the UK where such statistics on the ethnic composition of people in the penal population are published. So, would the Minister not agree that actually we are not that transparent when it comes to data like this?

Secondly, in actual fact, we do not really know how much crime there is in Singapore because all our statistics gathered are based on reported crime. I wonder whether the Minister would agree that we could actually gather more statistics on victimisation in the population rather than just to rely on reported crime statistics which may not tell us the dark figure of crime.

Let me take the second question first, which I am having some difficulty understanding. Ms Lim says our statistics are based on reported crime and that may not give the true picture. How would we assess unreported crime in the absence of the agencies knowing exactly what has happened? The agencies can only go on the basis of what is reported to them. And my assumption is that in a place like Singapore where people are well-educated and know their rights, if there is something that troubles them, they will go to the police. In fact, the position has been that they go to the police rather more than they should. So, really, I have difficulty answering that question beyond what Ms Lim has said.

As regards her first question as to whether we are quite opaque, I have read Mr Hwang's article and I did not get the impression that he was pointing to any particular statistic as being absent. Let me ask this question in the context of the thesis he put forward. He said that we do not publish adequate statistics and that has prevented a proper penological research. How in the world would publishing details on ethnic composition on aggregated basis help in such penological research? As a matter of common sense, if one wants to do any research, he needs to go down to the ground and get access to the specific prisoners which, obviously, as a matter of confidentiality, prisons cannot publish and make available to the whole world at

large. So, it just does not make sense. People do ask to do serious research and that kind of research can only be done by getting access to the prisoners themselves, specific areas to be looked into, and that is usually allowed by the prisons. When a serious researcher makes a request, that request is allowed, and often the prisons do collaborative research with such researchers.

Sir, in respect of the Minister's first response, I wonder if the Minister is aware of the crime victimisation surveys that are conducted in countries like the UK and the US where it is well established that members of the public do not report certain kinds of crimes, usually sexual crimes and offences against the person, and this is quite universally established data. I wonder whether he would comment on his assumption that people would seek help in all kinds of crime because the international data shows otherwise.

The second point about Mr Hwang's request for statistics – I have his article here actually – the paragraph in question, he says,

"One traditional justification for the lack of statistics is that these are sensitive figures which could be interpreted as indicating certain communities might be prone to commit certain crimes. But we cannot put our heads in the sand and hide important social facts which need serious study."

I believe what he is saying here is that there should be more transparency about the ethnic composition when it comes to certain kinds of offences.

Sir, may I answer the point on victimisation surveys first. As regards issues of victimisation in the context in which Ms Lim spoke about, we have agencies that intervene in these areas, for example, of minors and sexual

offences directed against people who are particularly vulnerable. There are specific Government agencies and departments that deal with it. And even in the absence of reporting, these issues come to light insofar as the agencies have intervened effectively and know about it. But my personal belief, based on what I have read, is that both in Singapore and in other countries, if people keep certain matters away from the government authorities, it is very difficult to access them. That is the point that I was making.

Secondly, in a highly urbanised situation like in Singapore, both with our people knowing very substantially their rights and with a number of Ministries involved in actively intervening in the social sphere, from the context of schools and MCYS, we are more likely to know what is happening. And we are likely to have a pretty good idea of what is going on.

As regards the point about lack of statistics specifically directed on ethnicity, the point I was making is in the context of doing serious research, what is the topic of research that is being identified, and public availability of data will help. I had earlier made the point if anyone wanted to do a study, eg, on ethnicity and crime, it is not a very difficult issue at all. The number of prisoners by ethnicity would be made available and they can go down and they can do a research study, that is not a problem. That and other kinds of research have been done. These are not matters that are kept private but there is usually little sense in making this generally publicly available. The question here that Ms Lim would have to distinguish is, if she wants the data for purposes of study, it would be made available, and all she has to do is to make a request and go down and conduct her research.

But it is an entirely separate question whether these have to be published as a

matter of general practice, for example, on the number of prisoners by ethnicity. It sometimes could lead to a misinterpretation of data. Let me give the Member an example. Amnesty International suggested that more foreigners are hung in Singapore compared with locals. A study over five years, if we aggregate the data, shows that about 101 Singaporeans were hung compared to 37 foreigners. But if we broke that down on an annual basis, we could get a misleading interpretation. So, aggregated data, any serious researcher would know, is often not very useful for proper serious research.

6. Mr Inderjit Singh asked the Senior Minister (a) if he will provide an update on the resolution of complaints concerning the sale of structured products by various banks; (b) whether the banks have satisfactorily concluded their handling of all the complaints and reported the final outcomes to MAS; (c) how many consumers have raised complaints to the Financial Industry Dispute Resolution Centre because they were dissatisfied with the banks' findings; (d) whether MAS has done any investigations into alleged wrongdoings by financial institutions and what is the outcome of these investigations; and (e) whether MAS has planned any new measures to further protect consumers with regard to the sale of structured products.

7. Mdm Cynthia Phua asked the Senior Minister (a) if he will provide an update on the investigation by MAS in the mis-selling of financial products; (b) what is the cause of the delay in the investigation; (c) what is the redress open to investors if they are not satisfied with the financial institutions' (FIs) handling of

the complaints and the resolution process; (d) how many investors have lodged appeals to the Financial Industry Disputes Resolution Centre to seek compensation for their investments; and (e) how many cases have the FIs made partial or full refund and how many cases are still outstanding.

8. Mr Siew Kum Hong asked the Senior Minister (a) how many complaints over mis-selling of Lehman Brothers-related structured products have been filed with financial institutions; (b) of these complaints, how many have resulted in (i) investors receiving a full refund (with or without interest) and of these, how many are "vulnerable investors"; (ii) investors receiving a partial refund; (iii) investors not receiving any compensation; (c) how many claims have been filed with FIDReC and of these, how many have been resolved; and (d) if he will provide an update on MAS' investigations into this matter.

9. Ms Sylvia Lim asked the Senior Minister in relation to investors in Lehman-linked structured products who filed their cases with financial institutions or FIDReC (a) how many claims have respectively been upheld, rejected, or still pending; and (b) how many cases of investors who do not fit the age or education profile of "vulnerable investor" have had their claims upheld.

10. Mr Sin Boon Ann asked the Senior Minister whether the Government will consider specific legislation to reduce or streamline the current legal complications arising from the recovery of investments linked to Lehman Brothers.

Mr Speaker, Sir, may I have your permission to take Question Nos. 6 to 10 together?

Yes.

Mr Speaker, Sir, I thank the five MPs for raising these questions. It gives MAS the opportunity to update the House on this issue.

To recapitulate, MAS has set out a three-step dispute resolution process to ensure the fair and impartial handling of complaints by the relevant financial institutions (FIs). A wide range of investors bought these products. There were different FIs involved and the circumstances under which investors made these investments also varied. Therefore, each complaint had to be assessed individually on its merits. The FIs' decisions have been based on an assessment framework developed in consultation with the independent parties (IPs) appointed by the FIs. Both the Consumer Association of Singapore (CASE) and the Securities Investors Association of Singapore (SIAS) have said that they are supportive of this process and regard it as being in the best interest of investors.

This process established by MAS was designed to achieve three main outcomes. First, to ensure that there is a consistent and rigorous process for the review of the complaints by the FIs. Second, to ensure a fair basis of decision, with the FI and investor taking due responsibility. Third, that the offers of settlement made to affected investors be regarded as reasonable and credible in the circumstances. MAS gave an update on 16th January 2009 on the handling and resolution of complaints for DBS High Notes 5, Lehman Minibond Programme Notes and Merrill Lynch Jubilee Series 3 LinkEarner notes. Looking at the progress made by the FIs and the results of the FIs' review of the complaints, as overseen by the IPs, I am of the view that the process put in place by MAS has achieved these outcomes.

In all, the 10 FIs that sold DBS High Notes 5, Lehman Minibond programme notes and Merrill Lynch Jubilee Series 3 LinkEarner notes received 5,381 complaints as at 14th January 2009. All complaints received on or before 14th December 2008 have been considered by the FIs' internal review panel, apart from a small number of complainants who have declined to be interviewed and cases where the FIs are still obtaining further information. The FIs are in the process of communicating the outcomes from the reviews of complaints to the individual investors. This could take a few weeks, as FIs intend to communicate with the investors face-to-face.

I welcome the support from SIAS and CASE for the three-step dispute resolution process. They have also given useful advice to investors to take a practical and realistic view when considering any offer of settlement they may receive. They have also highlighted to the FIs the importance of handling communications to investors promptly and making sure that investors fully understand the terms of any settlement offer.

As a result of the review of individual complaints by FIs, based on the cases decided by the FIs as of 14th January 2009, 58% of complainants will receive full or partial settlement. This comprises 25% of complainants receiving full settlement and 33% receiving partial settlement. Mr Siew Kum Hong has asked out of these offers of settlement how many are for "vulnerable investors". While MAS has asked the FIs to pay particular attention to this priority group of complainants based on some general characteristics, such as age, education and investment experience, a single characteristic such as age or education alone does not determine if an investor will be vulnerable to being mis-sold the products. For instance, someone with

little formal education may be a successful businessman. The person may have prior investment experience or could have invested in structured products jointly with, say, a younger family member. Nevertheless, all these cases were carefully reviewed by the FIs using the same assessment framework as for all other complaints. The FIs have told MAS that the outcome from the review process for investors who are elderly with little income, low levels of formal education and little investment experience is that most of them have been offered full or partial settlement. For the few cases among this group who do not receive any offer of settlement, the IPs together with the FIs have informed MAS that they have reviewed these cases and are satisfied that there are good grounds for the FIs' decisions.

Overall, this is a fair result. The process has worked as intended. The FIs have been responsible and co-operative in their overall efforts to ensure a fair resolution for affected investors. The independent parties have acknowledged the FIs' efforts in ensuring that the process is fair and rigorous, and that investors' interests are upheld. This reflects well on the way that the FIs involved have responded to the requests from MAS and to their commitment to upholding fair dealing.

Let me provide more details on the settlement offers made by the FIs. For DBS High Notes 5, 8% of complainants will receive offers of full settlement, and 16% will receive offers of partial settlement. For the Lehman Minibond Programme Notes which were sold by banks and one finance company, 34% will receive offers of full settlement and 41% will receive offers of partial settlement; for those sold by stockbroking firms, 1% will receive offers of full settlement and 12% will receive offers of partial settlement. As for the Merrill Lynch Jubilee Series 3 LinkEarner Notes sold by

stockbroking firms, 2% will receive offers of full settlement and 9% of partial settlement.

The differences in the settlement figures reflect the varied target profiles of customers of the various FIs and their different business models. For example, stock broking firms mostly performed the role of executing transactions on instructions from their customers.

For Pinnacle Notes Series 9 and 10, it was announced on 14th November 2008 that these notes would be subject to early redemption. I have been informed that the five FIs that sold Pinnacle Notes Series 9 and 10 have received 471 complaints as at 14th January 2009. MAS is in contact with these FIs to ensure that they handled investors' complaints according to the serious and impartial process that these FIs have already set up to deal with complaints relating to the earlier notes that I mentioned. Mr Hwang Soo Jin has agreed to oversee the complaints resolution process of the securities brokers for Pinnacle Notes Series 9 and 10. The other FIs are in the process of appointing independent persons to oversee the complaints handling processes for these notes.

Investors who consider they have a genuine claim that they were mis-sold the product or that the product was misrepresented to them should follow the same three-step process to resolve their complaints. Investors should first lodge their complaints directly with the FI that sold them the product. They should then provide full details of the case to the FI to allow the FI to make a fair assessment of the case. Finally, they can choose to accept the decision of the FI or refer their complaint to FIDReC where a fast track process has been put in place to deal with such cases.

Let me now turn to the cases referred to FIDReC. Mr Singh and Mdm Phua have

asked about the FIDReC process and for an update. Investors who are not satisfied with the outcome of the FIs' review of their complaints may choose to have their complaint referred to FIDReC. Should an investor decide to refer his case to FIDReC, any offer from the FI will no longer be available to him. FIDReC will consider the merits of each case, including all relevant evidence presented, whether in written or oral form. The decision of FIDReC is binding on the FI but not on the investor. Investors should bear in mind that the outcome from the FIDReC process could be more or less favourable than the outcome of the FIs' review of the complaint. If an investor is not satisfied with the outcome of FIDReC, he may pursue other options for recourse.

As at 14th January 2009, there have been a total of 227 cases received by FIDReC. These cases are a subset of the total number of complaints lodged with the FIs. Fifty-five of these cases relate to the DBS High Notes 5, 136 cases to the Lehman Minibond Programme Notes, 30 cases to the Merrill Lynch Jubilee Series 3 LinkEarner Notes and six cases to the Morgan Stanley Pinnacle Notes Series 9 and 10. These cases are currently being processed for mediation and, when necessary, for adjudication. Two cases have been successfully mediated so far. The time taken to resolve any particular complaint will depend on factors such as the complexity of the dispute and when the parties involved are available for meetings or hearings.

Mr Singh and Mdm Phua have also asked for an update on investigations by MAS. MAS has announced that it is looking into any FI-wide issues, such as the selling practices and policies within each FI, as part of its formal investigations. The investigations cover, among other matters, the FI's due diligence into the structured notes, the procedures used at the point of sale, including how the FI ensured that the notes were sold to

clients whose investment objectives and risk tolerance matched the risk profile of the notes, and the training and supervision of relationship managers. Where in the course of its investigations MAS identified issues relevant to the FIs' assessment of individual complaints, MAS has worked with the independent parties overseeing the complaint resolution process to ensure that these were incorporated into the complaints assessment framework.

MAS will be communicating its preliminary findings to the CEOs of the financial institutions involved. As part of due process, MAS will give the financial institutions a reasonable opportunity to respond to its preliminary findings before making a final decision. Until MAS' findings are finalised, it will not be appropriate for either MAS or the parties involved to comment further on the matters under investigation as it could be prejudicial to the investigation and the parties involved.

Mr Inderjit Singh has also enquired whether MAS has planned any new measures with regard to the sale of structured products. MAS has previously announced that it would undertake a review of the regulatory regime in light of these developments. The review is in progress and MAS will conduct a public consultation on the proposals by mid-March 2009. The review will consider stronger suitability requirements for certain type of products, clearer product labelling and simpler descriptions of the features and risks of products so that they are more readily understood. Proposals being considered include enhancing the regulatory regime for advertising and marketing materials and introducing product summary documents. There are already requirements that the sale of investment products in banks is to

be undertaken only by financial advisers who are not to perform any bank counter staff functions. However, the review will also examine whether any enhancements should be made to ensure there is an even clearer separation between a bank's traditional deposit-taking business and its investment products sales and marketing activities.

Mr Sin Boon Ann has asked whether the Government will consider specific legislation to reduce or streamline the current legal complications arising from the recovery of investments linked to Lehman Brothers. The review being conducted by MAS is also looking into possible measures to address the legal complications that have been noted in relation to the Lehman Minibond Programme Notes. One proposal being considered is introducing a requirement for the appointment of an approved trustee with prescribed powers for certain investment products such as structured notes.

In reviewing its current regulatory and supervisory approach, however, MAS will have to be careful not to come up with overly prescriptive rules which may not serve all investors. MAS' current approach is intended to allow Singaporeans a wider choice of investment options to cater to their diverse needs. MAS is studying the specific refinements that need to be made carefully so that hasty changes are not made, which could bring along unintended consequences in the future.

Another area where there is more work to be done is in investor education. Much has been achieved through the MoneySENSE programme, with the support of CASE, SIAS and various financial industry associations. However, these efforts will have to be stepped up. MAS is working with various stakeholder groups, in particular those representing investors' interests, such as CASE and

SIAS, as well as the relevant tertiary institutions.

Sir, I have two questions. One is on the role of the independent person that was appointed. Did the role include deciding who gets how much or would the person be involved in ruling on the process?

Secondly, there is also a whole group of people who had not made complaints to the FIs. Will they be allowed to make complaints and go through the process, now that the rest have been reviewed?

Throughout this process, we have found that the roles of independent persons have been a very positive one. First of all, we have an overall assessment framework and the independent persons (IPs), working together with individual FIs, have been able to help in the process to make sure that the cases are properly investigated, that the assessment framework is enforced and there is consultation between the IPs and the FIs to make sure that cases, especially those cases involving the so-called vulnerable investors, are carefully reviewed.

The IPs also helped MAS make sure that there is consistent and rigorous assessment throughout all the FIs because we must recognise that there are many FIs and institutions involved and this involved 5,000 over cases of complaints. So I would say that the whole process worked out very well.

As to the second question about people who have not complained, in fact many of the FIs have taken the initiative in combing through those who have not complained and where cases which they classified as worthy of compensation and settlement, they have in fact approached them. But those who have not complained, it is up to them if they want to proceed on this three-step process.

Sir, I have five supplementary questions, of which three are really requests for greater clarity on the information that has been released.

Sir, my first question is, how many of the investors who received partial or no compensation had been recorded as opting for the so-called option 4 in the sale process, that is, the no advice option, which on paper will seem to have absolved the adviser of the responsibility of ensuring that the product was suitable for the investor.

Sir, my second question relates to the information that has been disclosed which has been aggregated across all FIs divided into categories. So what is the breakdown of the resolution of complaints by each individual FI? This information will assure Singaporeans that each of the FIs have indeed been fair in their approach.

Sir, my third question: what was the total amount of compensation paid out? In particular, what was the total amount of compensation for the 1,282 investors who received full compensation and what was the total amount for those who received more than 50% compensation. This is important to assure Singaporeans that the FIs did not only compensate those investors with small claims.

Sir, my fourth question: MAS has explained, and the Minister has explained, that dissatisfied investors can proceed to FIDReC. Can the Minister confirm whether legally-trained employees of financial institutions can represent them before FIDReC whereas investors cannot be legally represented? If so, how would MAS ensure that the FIDReC process would be fair to investors?

Sir, my final question: MAS has announced, and the Minister has explained, that there will be a public consultation in March after feedback with the CEOs of the FIs. Can the Minister

assure Singaporeans that the full findings of MAS' investigations will be made public, subject to confidentiality concerns? Can the Minister also confirm whether investors can wait until those full findings are released before deciding whether to accept the compensation offers from the FIs so that they can make a fully informed decision?

Mr Speaker, Sir, on the first question, obviously if those who opted for option 4, which is the no advice option, if we have excluded them I think the figures would have been much lower. So I think the figures included even those who opted for no advice option, but I do not have the figures right here with me.

On the second question on aggregated numbers and the breakdown of each FI – what I have given is what is a useful breakdown in terms of the character of the review. There is a distinction between the FIs and the finance company versus the stock-broking companies. As I mentioned in my response, the stock-broking companies generally just execute the instructions given to them. They do not undertake a full financial advisory role so their responsibility is much less and therefore again this is reflected in the outcome. So if you look at the outcome for the Lehman Minibonds by the FIs, 75% received full or partial settlement, which I believe is a very fair outcome.

Third, on the total amount, it is not possible for us to give the total amount-compensated right now because, as I said, the FIs are in the process of making the offers individually and some may turn down or not all will accept. So the final outcome of the compensation will really depend on who finally takes up the compensation that is offered to them. The FIDReC process does both a mediation process as well as an adjudication process, and I think if you go

on to the website you will find that it is a very equitable process.

Finally, on the findings of the investigation and whether investors should wait for the findings to be known before they accept the offer, I would urge investors to look at the offer given to them. Whether they accept or not, it is entirely up to them. Even if they go for the FIDReC process, as I mentioned, there is a cautionary note – they may or may not receive more or less than the offers. So investors should study the settlement offered to them carefully and make the right decision.

Sir, I would like to ask the Minister whether FIDReC provides assistance to those complainants who do not understand English or who are not proficient in English?

I am sure they do. Just like in the courts and adjudication process, the facilities are always there.

Ms Sylvia Lim: I have two questions. First, I wonder whether the Minister could answer part (b) of my Question which is, "how many cases of investors who do not fit the age or education profile of "vulnerable investor" have had their claims upheld" which I had filed earlier.

My second point is that the Minister is aware that the Hong Kong's Monetary Authority had already issued a list of recommendations for banks and financial institutions to implement to prevent such things from happening again in the interim. And the public is actually noticing that the MAS' review is still pending and seems to be slower than the Hong Kong's Monetary Authority in issuing guidelines. I wonder whether the Minister would like to comment on that.

As I explained in my response, the process is actually very

bottoms-up. The FIs and the IPs look at every case on its own merits. So even though we found it useful to have what we call "vulnerable groups" to make sure that this is given priority in the review, actually, on the ground, every case is looked at. Even those which are not vulnerable are assessed on its own merits and the numbers show that many of them are also given full compensation and partial compensation. It is not meaningful to categorise "non-vulnerable" because, as I have explained in my response, each specific criterion, like age, education or size of investment, does not, in itself determine the merits. It is the overall combination of, first, what is the risk assessment of products versus the risk profile of the person to make sure that there is matching and, therefore, there is no inappropriateness in the products sold to the person. Then, in assessing whether it is inappropriate or not, we have to look at the person's ability to make his investment decisions, his education, his track record and the way he has been investing his funds. So it is a holistic assessment of each case.

As to Hong Kong's approach versus ours, I know we are similar. There are pros and cons in proceeding in different ways. In Singapore, we have decided that we should do this in a deliberate manner. The fact that we have resolved the 5,000 over cases in a very rigorous and fair manner shows that the process works, whereas, in Hong Kong, the resolution of such cases is still pending.

On the second part of the regime itself and the processes, again, MAS believes in doing this in a deliberate manner with proper consultation. As I have mentioned in my response, there are some ideas of what to do and we are putting them up for feedback both to the FIs as well as to the general public. When we have assessed the feedback, then we would make a decision. I think this process serves us well.

Sir, I just want to ask the Minister whether the FIs are required by MAS to inform the investors of the reasons for rejection or partial settlement?

I am sure the communication process is a two-way process. The investors would ask and the FIs would respond accordingly.

11. Mr Ong Ah Heng asked the Acting Minister for Manpower in light of the impending recession (a) what is the Ministry's projected number of retrenched workers and unemployment rate for 2009; (b) which sectors and industries are likely to contract and which will create jobs; and (c) what measures are being planned to help the retrenched and unemployed workers.

12. Ms Sylvia Lim asked the Acting Minister for Manpower (a) in the last 12 months, what is the percentage and number of Singapore citizens, permanent residents and foreigners who lost their jobs at all levels (unskilled to professional levels); (b) what measures has or will the Government put in place to induce employers to retain Singaporeans as opposed to foreigners in any downsizing exercise; and (c) whether the Government will reduce the number of work passes in the various categories issued to foreigners so as to increase the employment opportunities for Singaporeans.

Mr Speaker, Sir, may I have your permission to take Question Nos. 11 and 12 together?

Yes.

Mr Gan Kim Yong: Sir, I think it would be useful for me to provide an update on the employment situation and outlook.

The Ministry of Trade and Industry (MTI) announced earlier this month that it expects the Singapore economy to grow between -2.0% and 1.0% in 2009. The Minister for Trade and Industry has given an update earlier. Consequently, we expect job growth to slow down significantly this year and unemployment to rise. In fact, employment growth has begun to slow down in the second half of 2008 and more so in the fourth quarter. The overall unemployment rate for 2008, which will be released at the end of January, will be higher than the 2.1% in 2007, which was a record low in 10 years.

Over the nine-month period, from January to September 2008, a total of 6,418 workers were retrenched. Figures for the fourth quarter of 2008 will only be available at the end of January. Nevertheless, we expect the number of retrenchments to rise significantly in the fourth quarter of 2008. Based on the voluntary notifications provided by companies, about 4,800 workers were retrenched in the fourth quarter of 2008, and another 3,300 could be retrenched over the next few months. These are numbers based on notifications by companies. The actual numbers may be higher and we will know the numbers by the end of January based on our surveys.

Out of the 6,418 workers who were retrenched in the first three quarters, about 70% were locals, comprising Singapore citizens (SCs) and permanent residents (PRs). However, many employers release their foreign workers through early termination of contracts rather than retrenching them. The number of redundancies, which is the sum of early terminations and retrenchments, presents a more complete picture of the impact of job losses on locals and foreign workers.

Therefore, in terms of redundancies, locals constituted about two-thirds of the

7,478 redundancies in the first three quarters of 2008, while foreigners constituted one-third, roughly the same as the local-foreign proportion in our workforce. Amongst these, 56% of these redundancies came from the Production and Transport Operators, Cleaners and Labourers occupational group, while the Professionals, Managers, Executives and Technicians (PMETs) made up 32%.

The number of retrenchments and early termination of contract could increase further over the next few quarters, as more companies restructure their operations to respond to the economic downturn. Close to 30,000 workers were retrenched in 1998 due to the Asian Financial Crisis, and about 26,000 workers were retrenched during the economic downturn in 2001. If our economy contracts sharply this year, it is possible that retrenchments could reach these levels seen in previous recessions.

Sectors such as manufacturing and wholesale trade that rely heavily on external demand and regional movement of goods and services, may be more affected. The financial services sector is also likely to see more job losses. However, new jobs will still be generated from certain sectors in the economy, such as construction, healthcare, pharmaceuticals, public administration and the integrated resorts. For example, the integrated resorts are expected to add some 20,000 jobs to the economy over the next one or two years.

Mr Ong and Ms Lim have also asked how the Government is helping local workers and whether we can reduce the number of foreign workers to improve the employment opportunities for locals. Sir, we will monitor the situation closely and continue to carefully calibrate companies' access to foreign workers. On the supply side, the Dependency Ratio framework helps to ensure local employment since

companies' access to foreign workers is dependent on the number of local workers that they employ. The foreign worker levy, on the other hand, helps to moderate demand for foreign workers. However, even in a downturn, there will still be a need for foreign workers, especially in jobs that Singaporeans are unable or are unwilling to fill, such as those in the construction sector. Foreign workers help keep companies competitive against global competitors and keep jobs within Singapore. If companies are required to retrench only foreign workers, they may be forced to close down, or move to countries where they can have unlimited access to even cheaper labour; this will result in more job losses and, in turn, affect Singaporeans who work for these companies. This is a lose-lose outcome.

What is more effective is to enhance the employability of local workers. This will not only give them an added advantage over foreign workers but will also benefit the companies that employ them. This will be a win-win strategy. For this reason, we institutionalised the Workfare Income Supplement (WIS) Scheme to help the lower income and older workers. The tripartite partners are also working together to save jobs for locals. For example, the tripartite partners rolled out the Skills Programme for Upgrading and Resilience (SPUR) on 1st December 2008 to help companies cut costs and save jobs as well as to build up our workforce capabilities.

SPUR provides enhanced course fee funding and absentee payroll, but these benefits are only for local workers, therefore making it worthwhile for companies and employers to send their local workers for training during the downturn and save cost as well as save jobs at the same time. We recently expanded SPUR to over 800 courses, up from 150 when it was first launched.

This means that employers now have more options when sending their local workers for relevant training. With SPUR, companies are encouraged to retain local workers in managing the current downturn and positioning themselves for the economic recovery. As of 15th January 2009, more than 170 companies have committed to tap on SPUR to train nearly 8,000 workers. In addition, another 2,100 locals who are mostly retrenched or unemployed have signed up at our CET Centres for SPUR programmes.

We have also released the Tripartite Guidelines for Managing Excess Manpower on 19th November 2008, to encourage companies to adopt flexible work arrangements to help contain costs and avoid retrenchments. The response has been very encouraging, with over 90 companies already implementing the recommendations in the guidelines.

For the retrenched and unemployed, MOM, WDA and the unions have been working closely with companies to help them find suitable jobs. We have enhanced the job matching capabilities of the Career Centres, by building up a comprehensive job bank with jobs sourced from industries, as well as economic agencies such as EDB. Locals who are retrenched or unemployed may also be eligible for training allowance when they enrol for training under SPUR.

The upcoming Budget will be an expansionary one, with additional measures to help households and businesses cope with the downturn, as well as to develop our longer term competitiveness and capabilities.

The tripartite partners will work together to encourage employers and workers to adopt the tripartite guidelines as well as the NWC guidelines and to make full use of the training support and

opportunities available under SPUR. This way, we will be able to ride out this downturn and emerge stronger and more resilient.

Order. It is almost 3.00 pm.

[Pursuant to Standing Order No. 22(3), Written Answers to Question Nos. 13-18, 21, 24, 26, 29-30, 34 and 36-41 on the Order Paper are reproduced in the Appendix*. Question Nos. 19-20, 22-23, 25, 27-28, 31-33, 35 and 42 have been postponed to the sitting of Parliament on 22nd January 2009.]

*Cols. 1163-1194.

"to amend the Criminal Law (Temporary Provisions) Act (Chapter 67 of the 2000 Revised Edition)",

presented by the Senior Minister of State for Home Affairs (Assoc. Prof. Ho Peng Kee); read the First time; to be read a Second time after the conclusion of proceedings on the Estimates of Expenditure for FY 2009/2010, and to be printed.

"to amend the Building and Construction Authority Act (Chapter 30A of the 2000 Revised Edition)",

presented by the Senior Minister of State for National Development (Ms Grace Fu Hai Yien); read the First time; to be read a Second time after the conclusion of proceedings on the Estimates of Expenditure for FY 2009/2010, and to be printed.

"to amend the Human Organ Transplant Act (Chapter 131A of the 2005 Revised Edition)",

presented by the Minister for Health (Mr Khaw Boon Wan); read the First time; to be read a Second time after the conclusion of proceedings on the Estimates of Expenditure for FY 2009/2010, and to be printed.

"to amend the State Lands Act (Chapter 314 of the 1996 Revised Edition)",

presented by the Senior Minister of State for Law (Assoc. Prof. Ho Peng Kee); read the First time; to be read a Second time after the conclusion of proceedings on the Estimates of Expenditure for FY 2009/2010, and to be printed.

Order for Second Reading read.

3.00 pm

Mr Speaker, Sir, on behalf of the Senior Minister, I beg to move, "That the Bill be now read a Second time."

The Securities and Futures Act (SFA) was enacted in October 2001. It seeks to provide a single comprehensive legislative framework for regulating the activities and institutions in the securities and futures industry. This round of amendments aims to achieve greater consistency in Monetary Authority of Singapore's (MAS) regulations and enable MAS to respond more quickly to new market developments. They also enhance the supervisory and enforcement powers of MAS.

The MAS consulted the industry and the public on the proposed amendments and draft Bill in 2006 and 2007. MAS has incorporated feedback received into the Bill, where appropriate, and in line with MAS' regulatory objectives.

This Bill implements these amendments. In October, in response to questions by Members on the procedures to enhance safeguards for retail investors, I announced that MAS is conducting a separate review to examine the issues regarding the sales and marketing of structured products. Just now during Question time, I updated Members on the progress of this review so far. MAS will conduct public consultation on the proposals arising from this review in March and, therefore, these proposals are not covered in this set of amendments.

Mr Speaker, Sir, I will now go through the key amendments in the Bill. Let me begin with the changes to the rules on capital markets licensing and business conduct. There are five key changes in this section.

Capital markets licensing and business conduct

First, is to have a continuing licensing regime for corporate licence holders. Under the current SFA, capital markets services (CMS) licence holders have to renew their licences every three years. The Bill introduces a continuing licensing regime for these licence holders where licence holders will not have to renew the licences, to reduce their administrative burden. However, MAS will supervise licence holders on a continual basis, and have the power to revoke licences, if necessary. This brings the CMS licence holders in line with other MAS-regulated institutions, such as banks and insurance companies, which are already operating under a similar continuing licensing regime.

Representative Notification Framework

Second change is on the introduction of a Representative Notification Framework. Currently, only representatives of CMS licence holders need to apply for a licence from MAS to conduct regulated activities. This is not a requirement for representatives of financial institutions exempted from holding a CMS licence, such as banks and insurance companies. This is not desirable as it creates distortion in the recruitment and retention of representatives. It is also difficult for consumers to check if an individual is allowed to conduct certain regulated activities.

To ensure that all representatives, regardless of the institution they work for, are placed under the same regime, the Bill introduces a Representative Notification Framework. This will apply equally to representatives of CMS licence holders as well as representatives of financial institutions exempted from holding a CMS licence. Under this framework, financial institutions will have to notify MAS when they intend to employ someone to conduct a regulated activity. The financial institution will be responsible for ensuring and certifying to MAS that their representatives are fit and proper. Financial institutions and their directors can be held liable for making false or misleading statements.

As part of this framework, MAS will maintain a public register of representatives on its website. This register will list information on their representatives, including the type of regulated activities they are allowed to conduct, which institution they work for, and any formal regulatory action taken against them by MAS. Consumers will be able to use the public register to check on the individuals they deal with. Financial institutions can also use this public register to conduct reference checks on potential employees.

Control of take-over of CMS licence holders

The third change is on control of take-over of CMS licence holders. The Bill introduces a new requirement for potential controllers of a CMS licence holder. They will need to obtain MAS' approval before entering into arrangements that would give them effective control of such licence holders. A person has effective control when he acquires directly or indirectly more than 20% of a CMS licence holder's shareholding or voting power. Trust companies and insurance companies, which are regulated by MAS, are subject to similar requirements. MAS will also have powers under certain circumstances, to order people to relinquish effective control, or stop a person from being a party to an arrangement that could result in the person obtaining effective control. For example, MAS would be able to exercise these powers where a person is not, or ceases to be, a fit and proper person.

Prohibition order regime

The fourth change is on the prohibition order regime. Under the SFA, MAS can issue prohibition orders to CMS licence holders and their representatives. This is to help ensure that only suitable persons conduct regulated activities. However, there are gaps as MAS is not able to issue prohibition orders to other persons. This will be remedied under the Bill. MAS will be empowered to issue prohibition orders to the following additional persons:

exempt financial institutions and their representatives;

persons previously licensed or exempted from holding a CMS licence by MAS;

persons who were previously an appointed, provisional or temporary representative;

an officer or ex-officer of a CMS licence holder or exempt CMS licence holder; and

persons convicted of conducting regulated activities illegally.

Under the SFA, MAS may issue prohibition orders where MAS believes a person has contravened the SFA, or when a person has been convicted of an offence involving fraud or dishonesty. The Bill provides MAS additional powers for issuing prohibition orders. MAS will be able to issue prohibition orders to persons who have been ordered by the court, or who have entered into a civil penalty settlement agreement with MAS, to pay a civil penalty for market misconduct. Prohibition orders can also be issued to persons who have been removed, at MAS' direction, from the office or employment of a CMS licence holder. MAS will also be able to ban persons issued with prohibition orders from directly or indirectly managing or influencing the business of CMS licence holders or exempt CMS licence holders. For example, MAS will be able to prevent a person from acting as a director or being a substantial shareholder of these financial institutions. These amendments will better enable MAS to keep out unsuitable persons from the industry.

Regulatory assistance to foreign regulators

The fifth change is to provide regulatory assistance to foreign regulators. A number of the CMS licence holders and exempt CMS licence holders conducting SFA regulated activities are part of larger foreign corporate groups. Foreign regulators may wish to inspect them as part of their consolidated supervision. The Bill will clarify that a

foreign regulator that wants to inspect such financial institutions in Singapore will have to obtain MAS' approval. This will align the SFA with the Banking Act which has a similar requirement.

Market misconduct enforcement framework

Mr Speaker, Sir, I would like to turn next to amendments related to the investigation framework for market misconduct. There are three key changes in this section.

First is the ability to transfer evidence between the Commercial Affairs Department (CAD) of the Singapore Police Force and the MAS. Currently, a market misconduct case is taken up by either CAD or MAS at the onset of an investigation, based on the prima facie evidence. The CAD investigates when criminal proceedings are likely, while MAS investigates cases when civil penalties appear appropriate. As the investigation progresses, it may sometimes be necessary for one agency to transfer the matter to the other, based on their preliminary findings. For example, during its investigations, if MAS finds that the case warrants criminal prosecution, MAS will transfer it to CAD. Similarly, CAD may refer cases where civil penalties are more appropriate to MAS. The Bill provides for transfer of evidence between CAD and MAS, so that the agency taking over the investigation does not have to expend resources to re-investigate the case all over again. This will eliminate duplication of efforts.

Corporate derivative liability

The second change is on corporate derivative liability. The Bill will introduce a new concept of attributed liability for market misconduct offences. Currently, a company may not be liable when its employees commit market misconduct. For example, if an employee of an asset management company engages in insider

trading using company funds, the company would be liable only if the employee was a director or a secretary of the company, or a person employed in an executive capacity. A company may therefore avoid liability by delegating decisions to lower level employees. The amendments address this by making a corporation, partnership or limited liability partnership liable in certain circumstances. Where it is proven that the market misconduct by an employee, officer, partner or manager has been committed with the consent or connivance of an entity, the entity may be subject to criminal liability. Civil penalty liability would be imposed where the entity has, through its negligence, failed to prevent or detect the employee's market misconduct.

Disgorgement by persons who benefit from contravening trades conducted on their behalf

The third change is on disgorgement by persons who benefit from contravening trades conducted on their behalf. The Bill also introduces a new remedy for affected investors of trades that contravene the market conduct provisions of the SFA. A person who is not party to such illegal trades may sometimes benefit from the profits made. Let me explain with an example. A broker may have used a client's trading account without the client's permission to conduct insider trading. The profits from this illegal trade are credited to the client's account. The broker, as the contravening party, is liable to affected investors for losses incurred. However, he is not in possession of the profits made. It is the client that has made the profits. The client should not be allowed to keep the profits, even though he was not party to the market misconduct. To do so would mean depriving affected investors of an opportunity to recover their losses. The new remedy will allow MAS or affected investors to apply to court to order a person not privy to the illegal trade or

market misconduct to disgorge any gains made from the illegal trades. The gains will be paid into the court. The court will then assess all affected investors' claims and distribute the sum equitably. However, a court will have the discretion not to order disgorgement if the court considers that the circumstances make it unfair to do so.

Notification of changes in shareholdings of directors, Chief Executive Officers and substantial shareholders and offers of investments

Mr Speaker, Sir, I will now go through the amendments related to changes in the shareholdings of directors, CEOs and substantial shareholders.

The legal obligations for reporting of interests by directors and substantial shareholders of listed corporations are currently found in both the SFA and the Companies Act. Under the Companies Act, directors and substantial shareholders are required to notify the listed corporation of their interests and changes in interests. Under the SGX listing rules, the listed corporation is in turn required to notify investors. The aim of these reporting requirements is to ensure that the market and investors are kept informed of any changes in shareholdings of directors and substantial shareholders on a timely basis. There are also obligations for directors and substantial shareholders under the Companies Act and the SFA to notify the Singapore Exchange Limited (SGX).

This Bill streamlines and consolidates all notification requirements for directors and substantial shareholders in relation to their interests in listed corporations in the SFA. Directors and substantial shareholders will need to report their interests or changes in interests to the listed corporation, which in turn will inform

investors of any such changes. The notification requirement is extended to any CEO who is also not a director. The current obligation for directors and substantial shareholders to separately report changes to the SGX will be removed. While these amendments streamline the current requirements, they will not reduce the amount of information disclosed to the market and investors. Similar amendments are also being made to the disclosure requirements for interests in listed business trusts and real estate investment trusts (REIT).

Lowering minimum investment threshold amount for prospectus exemption

The second key change is on the lowering of minimum investment threshold amount for prospectus exemption. Currently, offers of investment must be accompanied by a prospectus. The SFA allows offers to be made without a prospectus if the minimum investment amount for the offer is at least S$200,000. This means that each and every investor must invest at least S$200,000 for each transaction before the offer can be made without a prospectus.

In response to industry feedback, MAS will lower this minimum investment amount to S$100,000. S$100,000 is a very significant sum of money. MAS considers that a person who is willing to invest S$100,000 or more in a single transaction would possess, or have the ability to get access to, sufficient financial information to protect his own interests. The S$100,000 minimum investment amount is in line with thresholds set in other jurisdictions, eg, the European Union's threshold is set at EUR50,000, while Hong Kong's is set at HK$500,000.

Enhancements to the Real Estate Investment Trusts (REIT) Regime

The third change is on enhancements to the Real Estate Investment Trusts

regime. I now turn to the enhancements being made to the REIT regime. Singapore's REIT market has developed substantially in recent years. Amendments are being made to ensure appropriate rules are in place to govern mergers and privatisations of REITs. With these amendments, the Takeover Code will apply to REITs. The Bill will also allow an offeror making a general offer for units in a REIT to compulsorily acquire the units of the dissenting minority. The offeror can do so if he has obtained acceptances of 90% or more of the units offered. Minority unitholders will also be able to require an offeror to acquire their units if the offeror has acquired 90% or more of the total units in the REIT. Similar amendments will be made for business trusts in the Business Trusts Act. These provisions being introduced mirror the compulsory acquisition provisions in the Companies Act.

The Bill also introduces a new provision to protect REIT unitholders. A REIT unitholder will be able to apply to court for an order to seek judicial redress in cases of oppression, unfair discrimination or prejudice. This remedy is currently available in the Companies Act and the Business Trusts Act, and should similarly be afforded to REIT unitholders.

Markets and clearing facilities

Sir, let me now turn to the amendments that deal with Singapore's markets and clearing facilities.

Approved exchanges and designated clearing houses are systemically-important parts of our financial system. Any failure or disruption in these markets and clearing facilities would undermine financial stability and public confidence. Following a general review of its powers to deal with emergencies across the financial sector, MAS has assessed that it is important to extend its existing emergency powers under the SFA to deal

with events that would impact approved exchanges and designated clearing houses.

First, MAS will be allowed to appoint statutory advisers. These advisers are to provide advice to an approved exchange or designated clearing house on the proper management of its business. The power to appoint statutory advisers can be triggered in emergency circumstances. One such circumstance would be where the exchange or clearing house is likely to become insolvent. Another would be where the entity is being mismanaged to the detriment of MAS' regulatory objectives.

Second, MAS will be given powers to obtain information from any person in emergency circumstances to maintain the safe and efficient operation of a designated clearing house. For example, MAS may require information necessary for it to order the liquidation of positions held with a clearing house. This will complement MAS' existing powers in respect of approved exchanges.

Regulatory flexibility to deal with market innovation

Sir, allow me now to turn to the final category of amendments to the SFA. This touches on enhancing regulatory flexibility.

The definitions of "securities" and "futures contracts" are being amended. MAS will have the power to prescribe or exclude products as securities. The power to prescribe products as securities, in particular, will allow MAS to bring new products within its regulatory ambit under the SFA in a timely manner. MAS currently has the power to prescribe new contracts as "futures contracts". The proposed amendments will give MAS the power to also exclude contracts from the definition of "futures contract". These amendments will enable MAS to act more efficiently on market developments.

Mr Speaker, Sir, to conclude, the financial landscape is constantly changing. Good regulation is about balancing the needs of the financial markets and the investing public. MAS will keep our regulatory regime under review to ensure that the transparency and integrity of Singapore's financial system is upheld.

Sir, I beg to move.

Question proposed.

3.20 pm

Mr Speaker, Sir, I support the Bill.

This Bill comes during the time of great turmoil in the global financial markets. World financial systems have failed and today no one knows what the right financial model will be for the future. Sir, this Bill is about two years in the making, and I am sure many of the changes proposed already need changing for us to be able to manage the financial markets in the future. We learned many lessons not only from the failure of Wall Street and other major financial markets of the world but also close at home where the sale of structured products in our financial institutions demonstrated some weaknesses in the Securities and Futures Act, the issue that we discussed during Question Time just now. I therefore urge the Minister to as quickly as this Bill gets passed start the review process of the next set of changes. We hear that MAS is already doing this, and I hope that he can come back and implement them as quickly as possible.

Sir, the one area the public will demand of us and which deserves special scrutiny is on whether there is sufficient oversight over the products on sale and the people that they are sold to. There is a strong view among people on the

ground that we need to tighten the regulations surrounding this. Many unsuspecting or vulnerable people got sold products that they should not have been sold. In this Bill, among the things we are doing is altering the definition of “securities” (in section 239) and “futures contracts” (in section 2) of the Act. In this change, MAS is given the ability to prescribe products as securities and the power to exclude certain products from the list of securities or futures contracts. To give this change meaning in the present context, we need to ensure that the regulator is vigilant and takes the initiative to review the products out there, as well as the institutions selling them, instead of just scrutinising new products that institutions intend to place on the market. So we should review all the current products that are already out there.

Sir, I would like to move now to the comments on this Bill. I have some specific and some general comments.

The replacement of the licensing regime for representatives under the SFA with a notification regime is achieved by the amendments (and consequential amendments proposed) by clauses 17 to 39 of the Bill.

My comments are, first of all, the Bill modifies the current requirement of renewing a Capital Markets Services licence every three years, which poses some administrative and compliance pressure on the industry. The switch to a perpetual licensing scheme makes this compliance much easier and is a positive move to assist the financial institutions at a time when institutions are under pressure on the business side and as competition heats up around us, and as we try to grow ourselves as a financial centre.

It is also good because it is similar to the perpetual licensing regime that

governs banks and insurance companies and rationalises the systems governing the different parts of our financial infrastructure. So they were different in the past and I am glad that we are rationalising right now.

Sir, in the recent structured products saga, we have heard from members of the public who feel that they have not been well served by financial advisers or people who have persuaded them to invest in the instruments. We must remain vigilant that once licensed, there is some continuing oversight over these professionals. We must balance the reduction in oversight with mechanisms that allow the public to have better information about the licence holders and their backgrounds and competence, an accessible means to raise concerns about the licence holders, and the ability on the part of MAS to investigate and suspend or revoke the licence as appropriate. It should not be that once it is perpetual, we do not come back and review the licence holders.

Sir, MAS can collect information on licence holders and the activities to which their licences relate (as proposed in the re-enacted section 94) and also publish this information (as proposed in the new section 94(2)). In the age of the Internet, and given the important end of protecting the public by giving them information about the licence holders, I would like to recommend that MAS consider, as a best practice, publishing at least the basic information about licence holders and their allowed fields of activity, on a page linked to main website, MAS website, and that this information be accessible by the public without charge. Also, where a representative has had a prohibition order made against him, it would be important to have this information publicly accessible.

The proposed new section 99C(1) also provides for collection of information on

the representatives. This will ensure that the financial industry professionals who have a record of action taken against them will not be able to continue acting with impunity and harming the financial interests of members of the public and the institutions that deal with them. I would suggest that, as a best practice, the MAS make it a practice of publishing the information collected pursuant to its powers in section 99C(1), which it is allowed to do under section 99C(2).

Sir, having information that is easily publicly accessible will add teeth to the requirement imposed by the proposed new regime of all representatives having to be registered. Knowing that your status can easily be checked will be a sure way to incentivise people from becoming legitimate licence holders.

The move to make all representatives here subject to licensing requirements (as proposed by the new section 99B, as amended in clause 36 of the Bill) is a positive one that will simplify matters not just for professionals wanting to work in the financial industry in Singapore but also for members of the public who deal with them. The provision allowing a person to be licensed as a temporary representative (which is proposed under section 99F) would in theory allow talented financial practitioners from other countries to come here and work for short periods of time on a limited assignment basis. I would caution, however, that in the current period of job losses, particularly in Wall Streets and other European financial markets, we are likely to see an inflow of financial practitioners seeking their fortunes here while they ride out the downturn elsewhere. The MAS should therefore exercise strict control on the practitioners it allows to practise here as temporary representatives, and push them as far as is practicably possible to make them committed to become at least provisional representatives (under the

proposed section 99E) pending their sitting for the examinations to become appointed representatives as proposed under section 99D.

An important provision to safeguard the public is the proposed new section 99H, which requires principals to lodge documents certifying that they think their proposed representatives are fit and proper persons for the appointment in respect of the regulated activity, as defined in section 99H(1)(b). Although there is a requirement for the institutions to keep records of documents on the basis of which they certify such representatives as fit and proper, the issue might be that this certification is very subjective because it is done by the financial institutions and this certification may not be standardised across the industry. The certification is also a one-time certification.

I therefore have three suggestions for improvements here. First, I would suggest some kind of periodic confirmation of certification. Although the legal effect would be the same as the initial certification, the periodic certification would keep the importance of responsibility operating in the minds of the leading executives at the financial institutions about the importance of the certification.

Second, I suggest that MAS be given the power to audit the certification to see whether the institutions have a process in place and exercise proper judgment when certifying representatives.

My third suggestion relates to the examinations. Under the proposed amendments, representatives have to take an examination before they can become approved. My question is: is MAS involved in the setting of the curriculum for these examinations or at least having an oversight of it, and reviewing the

stringency of the examinations? I also suggest that as in other professions, such as the legal profession, a compulsory ethics component be included in the examinations, in addition to the product knowledge and rules and regulations components which are the requirements right now. These will make the examinations and curriculum in sync with what the current context demands of us. MAS could even consider footing some of the cost for the training and examinations in the interest of upholding standards. So we can support institutions that do these examinations by funding them.

In particular, where the representative that is being certified has worked with institutions that hit troubled times due to improper market conduct or dubious sales practices, the financial institutions employing and certifying them should be cautioned to take extra care when reviewing their status and in certifying them. MAS, perhaps, should get involved in cautioning them.

The powers of MAS under the proposed sections 99M and 99N are comprehensive and should provide comfort to the public that the regulator has the teeth to keep representatives straight. The powers in section 101A in particular and their effect as set out in the proposed section 101B are also important in this regard.

The extension of the prohibition order regime to institutions that were exempt under the Act (as stated in clause 39, in the proposed new section 101A (1)(b)) is also welcome, as it aligns the regulatory oversight role over all such institutions and also levels the playing field.

In the current financial meltdown, we have seen that many of the culprits of the problems caused in the US operated with near impunity and outside of effective regulatory oversight. This amendment, I hope, will prevent such a lax regime from developing here. The ability to make a

prohibition order against a person who has been ordered to pay a civil penalty is a useful pressure mechanism against such a person as well as a protective mechanism for the public, as in the proposed section 101A(1)(f).

The power of MAS to make prohibition orders under the new section 101A, with the powers to revoke or suspend a licence holder's licence if such an order is in force (under the new re-enacted section 95(2)(h)), is an important power and I am glad to see this included in the amendments.

I would suggest that if a Prohibition Order has been made, this also be reflected in the publicly available information on licence holder – the suggestion that I made earlier. I also note that from the proposed section 101A that there may exist an interim period between the making of a Prohibition Order under that section, and the revocation or suspension of the licence holder's licence. In that interim period, and after, it is critical that the public has this information so that they can take steps to protect themselves. It may also be that a Prohibition Order does not lead to revocation or suspension of the licence under the proposed re-enacted section 95, as the MAS would have to give the licence holder the right to be heard before doing so (as stated under section 95(4)). In that event, there may be a situation of some loss of reputation to the licence holder or to the institution because of the revelation of the information. However, I think it would be best to err on the side of protecting the public. Licence holders will just have to be that much more careful before exposing themselves to situations where their licences are threatened.

Sir, I also note that the Prohibition Orders seem to be perpetual. From the Bill, there are a variety of situations where the Prohibition Orders can be made. I suggest that the Prohibtion Orders be

time-based, with the possibility of an extension where appropriate. Further, where the infraction is less severe, these Prohibition Orders should be treated differently from those where there have been offences of dishonesty and fraud leading to the Prohibition Orders. For both of these categories, especially for the former, I would suggest some process of rehabilitation and re-admission as a representative. This will allow us to keep our talent base here.

So, on the issue of fund raising, while I generally support the changes under clause 67 which amends section 240, I would like to ask the Minister why clause 73, which amends section 275 to reduce the minimum investment amount required for offers made to certain accredited and other persons from $200,000 to $100,000, is necessary. I worry that this reduction may open up a pool of unsophisticated customers that representatives may be tempted to target. We have seen from the recent structured product saga, particularly the Lehman Minibonds, there were those that we called "vulnerable customers" who had invested more than $100,000. One of my residents invested $110,000, and I consider them as not in the know. I think reducing from $200,000 to $100,000, at this point of time, does not seem to be a right move. Can the Minister please explain the reason for lowering this floor amount?

The new section 236L, which is introduced by clause 61, allows MAS to apply to the Court for an order for disgorgement of benefits. Under sub-section 4, it is proposed that the Court will not make such an order if the party against whom it is sought is innocent of knowledge and did not have a reasonable suspicion that the benefit he gained was due to a contravention such as specified in section 236(1). And then there is the word "and" – and if he has changed his position after receiving the benefit. This cumulative requirement of innocence

and change of position is not rational to me. If someone is innocent of such a knowledge, then why should we require that his position be changed before we make an order for disgorgement? Similarly, if he is not innocent of such knowledge, why should it matter that he has changed his position after that? I would recommend therefore that the requirement be limited to innocence of knowledge of contravention only, without the additional requirement of change of position.

Sir, on balance, I support this Bill, although I hope the Minister will respond and, if necessary, make modifications to the Bill as I have outlined, in view of revelations of the fragility of the financial infrastructure that have come out as a result of all the recent events in the financial industry. And as I have mentioned, I hope that we will quickly follow with another amendment to put in place all the lessons that we have learnt in the recent saga.

Mr Speaker, Sir, thank you for allowing me to join in this debate. The Minister has explained that this Bill does not address the issues raised as a result of the structured product issue. Even so, I hope that this House will bear with me as I point out some of the changes that I think should have been included in this Amendment Bill.

The Securities and Futures Act (SFA) was enacted in 2001, to introduce a disclosure-based regime. The idea is that such a regime will empower investors to make informed decisions. I think it remains undisputed that, on the whole, this is preferable to a merit-based regime, where the regulator decides on the products that may be offered on the market. But that is the general rule. There are, of course, exceptions – situations where rigid insistence on the disclosure-

based regime could be more due to dogma than merit, where even the most transparent of disclosures would not be adequate.

This idea of an exception is not radical. The SFA itself permits a differentiated approach for products that are limited to so-called "accredited persons" under the Act, which includes high net worth individuals – meaning individuals with net personal assets exceeding $2 million or annual incomes exceeding $300,000. So, at one end of the spectrum, we have different treatment for sophisticated investors. Why should we also not have different treatment at the other end of the spectrum, to protect unsophisticated investors as well? Indeed, logic dictates that at the margins, a one-size-fits-all approach is likely to be inadequate, and that differentiated treatment is likely to be required.

And let us go further, beyond the ambit of the SFA. Let us look at the CPF Investment Scheme, for a very clear example of a regulator adopting a differentiated approach in terms of products that are deemed to be too risky for investment. This House recently debated the limits on Town Councils' powers to invest their sinking funds in high-risk products. We make all these decisions for Singaporeans. So, why is the regime under the SFA so different? While we should seek to preserve the maximum investment freedom of individuals under the SFA, that cannot be at the price of suitable protections. So, the question is really about the limits of the disclosure-based regime, about where we should draw the line. I would frame the question thus: are there products that are inherently unsuitable for sale to retail investors over the counter, regardless of the level of disclosure made?

There are really two aspects to this question. Firstly, are there investment products that are so complex, that it

would never be possible to have meaningful disclosures to justify their sale to retail investors. Disclosures have to be meaningful for the disclosure-based system to work. As one Mr Ng Kwong Yee pointed out in his letter to the Straits Times Forum on 14th October 2008, "It seems the current disclosures serve more to indemnify financial institutions than inform investors in their very complicated and technical method."

Indeed, the Hong Kong Monetary Authority, in its report on Lehman-related structured products, explicitly recognised that "investors will not read and understand copious documentation, which is often designed more for the protection of the issuer than for the enlightenment of the customer." Surely we also need to recognise this simple fact of life and then address it, instead of continually asking investors to read the documentation and make informed decisions, knowing that the documentation is such as to make that realistically impossible for most or almost all retail investors.

In any case, disclosures, as they are presently made, are really a one-size-fits-all approach to complying with the SFA's requirements. But most 70-year-old retirees will have a lot of trouble understanding credit default swaps, reference entities and credit events. They can all be disclosed. They can all be written in bold on the front cover of the document, but would the retiree understand? Would even a 30-something working professional understand? I, for one, am quite sure, I would not.

Much has been said about a statement in bold printed on the front cover of High Notes and Minibonds prospectuses, stating that investors may lose all of their investments. But this bold statement, in and of itself, cannot be adequate to satisfy the obligation for adequate disclosure, without being accompanied by either a quantification of the risk of total

loss, or an explanation of the ways in which such loss may occur. A mere disclosure cannot be enough – it must be a meaningful disclosure. And when investment products are being sold over the counter to retail investors, and disclosures are put in documents that run into the hundreds of pages, can it ever be possible to have a meaningful disclosure for products as complicated as these structured products were?

No less than Prof. Ivan Png, a former Nominated Member, has confessed to not being confident that he fully understands the Minibonds, in his newspaper articles on the subject of structured products. And Dr Oliver Chen from the NUS Risk Management Institute and Dr Anand Srinivasan from the NUS Business School have stated:

"A key consideration in deciding whether such structured products should be marketed to retail investors should be whether the risks involved can be readily understood. Some structured products, whose risks are very difficult to understand, may never be suitable for retail investors."

Let me just repeat that – "some structured products, whose risks are very difficult to understand, may never be suitable for retail investors."

Both Dr Oliver Chen and Prof. Png are far more learned and know much more about financial matters than I can ever hope to know. If even the experts find these structured products complex and difficult to understand, what hope is there for common people like me, much less the retiree uncles and aunties who have always kept their money in fixed deposits? Can disclosures, however transparent, ever justify the sale of such complex products to retail investors over the counter?

The second aspect is this. Can investment products that are so high-risk

or so unfair to investors that they should not be sold, especially to retail investors over the counter, regardless of the disclosures made? On 31st October 2008, the Straits Times carried a report on a forum organised by DBS for High Notes 5 investors the day before. DBS reportedly admitted at the forum that the product was not high-risk, that on a scale of 1 to 10, 10 being the highest risk, the product should be between 8 and 9. That makes High Notes 5 an immensely high-risk product. It should not have been sold to investors then.

As for unfair products, Minibonds are a striking example. Minibond investors had essentially insured the issuer, Lehman Brothers, against the risk of a credit event by the reference entities. So not only did Lehman Brothers make money from structuring and selling the Minibonds, it also insured itself against its own investment risks, a state of affairs that was not explicitly disclosed as such in the pricing statement or prospectus. Given the potential returns from the Minibonds, in the range of a few percentage points, was this wholesale transfer of risks to investors justifiable? Was it fair? Should such products ever be permissible for sale to retail investors over the counter? In the case of the Minibonds, the disclosures were not clear. But even if they had been transparently clear, should that make a difference to the issue of whether to allow the Minibonds to be sold to retail investors over the counter, given how inherently unfair they are?

My views should be clear. I do believe that some products can be so complicated that the disclosures can never be adequate for over-the-counter sales to retail investors, and that some products can be so high-risk or so unfair that they should not be sold over the counter to retail investors. Just look at the Minibonds. They are an extremely clear case in point.

I am sure that some people will say that investors need to take responsibility for themselves, that if they do not understand a product then they should not buy it. I think this is too simplistic a view, and also smacks of hubris. I myself have never bought structured products, because I did not understand them. I did not understand where the money was being made, and I did not know who was making the money and so I concluded – perhaps cynically, but certainly correctly – that it would not be the investors who are making the money. But I thank my lucky stars for my good fortune and my relative risk averseness to have been spared. I certainly do not put it down to any special intelligence on my part.

The role of regulation is not so much to protect people like the Members of this House, whom I am sure are intelligent and sophisticated enough to take care of ourselves, but to protect the gullible, the unsophisticated, the vulnerable. We can and must maintain a balance between maintaining a flexible regulatory regime that as a rule does not substitute the regulator’s decision for individuals’ decisions, and building in sufficient differentiated treatment to protect those who need such protection. We cannot veer too much to either end, whether for ideological or other reasons.

I have chosen my words carefully – overly-complex, overly-risky and overly-unfair products should be prohibited from over-the-counter sales to retail investors. I am not advocating an outright prohibition, but rather that such products be disqualified from over-the-counter sales to retail investors. A retail investor who really wants to purchase such products should still be permitted to do so through other channels. This would preserve freedom of choice and mitigates the problem of moral hazard, while preventing repeats of the structured products saga, or at least making them rather more unlikely.

Over the past two decades or so, we have seen that the ingenuity of financial engineering knows no bounds. The financial crisis would have curtailed the excesses of financial institutions in creating products that were once praised as being innovative, but are now clearly reckless and exploitative. But rest assured, the financial engineers will return, and we absolutely need to make sure that our regulatory regime is able to guard Singaporeans against their worst abuses.

The Bill currently before this House does not address these issues. I certainly hope that MAS will draw the correct lessons from this structured product debacle, and do what needs to be done to protect consumers.

Sir, with that, I support the Bill.

Mr Speaker, Sir, I thank the two MPs for supporting the Bill. Let me try and explain the changes and respond to the queries raised.

First, on Mr Inderjit Singh's query on widening the definitions of "securities" and "futures". This allows MAS to respond to the classes of products that come into the market, but not to review individual products. So our general regime still remains the same. As Mr Siew Kum Hong says, it is a disclosure-based regime, and we think that that is fundamentally the right approach. But we have different classes of products that come into the market and therefore MAS needs the power to be able to define them whether they are "securities" or "futures". In response to Mr Inderjit Singh, this is not intended to review specific individual products but classes of products, eg, new types of warrants being classified as part of the "securities" that we will regulate.

Second, is the perpetual licensing regime. I am glad Mr Singh supports this

because it reduces administrative costs. I would like to reassure him that a perpetual licensing regime does not mean that MAS will not regulate the system. It is not just giving an individual a licence and we forget about him. There will be continuous licensing, regulation and monitoring.

Here, let me explain. There are two categories. One is the licence holders which are really the entities. I take his suggestion that there ought to be some kind of disclosure of what kind of regulator activities the licence holder can be involved in, and I am sure that is somewhere in the website. If it is not, we will put it out there. The second group is really the representatives. These are the individuals and, as I explained in my Second Reading speech, we have this register which will be publicly available. The things that Mr Inderjit Singh talked about, disclosure and letting people know the person is qualified to act as a representative, are taken into account. For the public register, whether there are prohibition orders or black marks against these people, these will all be in the register. The prohibition order is made public. That is the intention. It is time based, usually it is for five years, but the period will be indicated. This is a balance between making it public so that people know the record but, at the same time, giving a chance for people to be rehabilitated and go back into the system.

On the definition and certification of "fit and proper", the whole idea of having this continuous system and having this public register is to put the onus on the entities – the licensed holder or the financial institutions – so that when they employ the representatives, they have to be responsible, and the onus is on them to make sure that they are fit and proper. MAS, together with the stakeholders, of course, has a guideline of what are the

criteria for deeming people fit and proper. And I would like to assure Mr Inderjit Singh that this is a continuous system. It is not that when an institution employs somebody, it makes an assessment, but we expect the institution, in certifying that the person is fit and proper, to do so on a continuous basis.

Mr Inderjit Singh also talked about temporary representatives. I think this is the flexibility we have so that qualified professionals can work in Singapore for short periods for projects or for certain deals. And then if they want to be here on a more permanent basis, then of course they become provisional or permanent. Again, the onus is on the entities who employ them. They cannot just come on their own. They are likely to come in being an employee of an institution. So they would be assessed and certified by the institution.

On the question of the minimum investible sums coming down to $100,000, as I explained in my Second Reading speech, this is a relaxation in line with other jurisdictions but, at the same time, it is quite an onerous requirement, because what we are saying is every individual investor must invest no less than $100,000. So, it is not like the Minibond case where we have a range of investors, like some of your constituents may have invested more than $100,000, but others may have invested $50,000 or $20,000. So that will not qualify and therefore a prospectus is needed. For prospectus that is not needed, each and every investor must invest more than $100,000. So it is quite an onerous requirement.

On the point about disgorgement, I think we want to have a fair system where people who have benefited from it, even though they are not directly involved in illegal trade, should disgorge the

proceeds of the illegal trade. Even though a person may not know of the trade, because the profits are the proceeds of an illegality, he should not be allowed to retain the profits unless there has been a change of position such that it is unfair to make him disgorge the profits. So that is the reason why there is the word "and" and not "or".

Let me respond to Mr Siew Kum Hong's points. Essentially, as I mentioned in my Second Reading speech, these amendments do not take into account what MAS is doing in reviewing the risk assessment and the sales process of structured products, the issue that he is very concerned with. I am sure we will come back to the House again when we make changes in the risk classification and the sales process of structured products.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Lim Hng Kiang].

Bill considered in Committee.

The citation year "2008" will be changed to "2009", as indicated in the Order Paper Supplement.

Clauses 1 to 120 inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.

Order. I propose to take the break now. I suspend the sitting and will take the Chair again at 4.15 pm.

Sitting accordingly suspended

at 3.57 pm until 4.15 pm.

Sitting resumed at 4.15 pm

Order for Second Reading read.

Mr Speaker, Sir, on behalf of the Senior Minister, I beg to move, "That the Bill be now read a Second time."

The House has just debated on the Securities and Futures (Amendment) Bill 2008. The amendments in the Financial Advisers (Amendment) Bill 2008 are similar in part to the Securities and Futures (Amendment) Bill 2008. It has the same objectives of enabling MAS to respond more quickly to new market developments, and enhancing the supervisory and enforcement powers of MAS.

Key amendments that have been made in the Securities and Futures (Amendment) Bill 2008, which will be replicated in the Financial Advisers (Amendment) Bill 2008, relate to the amendments on capital markets licensing and business conduct. Specifically, these are in relation to:

continuing licensing regime for financial advisers' licence holders;

introduction of the Representative Notification Framework;

the control of take-over of licensed financial advisers; and

MAS' powers to make prohibition orders.

The rationale for the amendments to the Financial Advisers (Amendment) Bill 2008 has been elaborated on in the

House's deliberations on the Securities and Futures (Amendment) Bill 2008. MAS will monitor the evolving financial landscape, and continue to review the regulatory framework for the sale and marketing of products within the ambit of the Financial Advisers Act.

Sir, I beg to move.

Question proposed.

4.16 pm

Mr Speaker, Sir, I have made extensive comments on the Securities and Futures (Amendment) Bill which this Bill proceeds to follow, as the Minister has mentioned. I, therefore, support the amendments in this Bill that affect the amendments in the Securities and Futures (Amendment) Bill which we have just covered a while ago. I will, therefore, limit my comments to the points that were not covered under the SFA. I have one main concern and that regards the investigative powers of MAS.

Sir, I am especially concerned about the new section 70A(6) which makes it an offence by a person if such a report by MAS was disclosed to him, unless he can prove that it was contrary to his desire, which means that he did not desire to receive it even if someone had sent him without his choice, and that he took suitable steps to surrender the report and destroy the copies of the report that he got. The offence is proposed to be punishable by a fine of $50,000 or imprisonment of up to two years, or both. Notwithstanding that this may be the most convenient disincentive to put in place, it must have some semblance to what is practical and what is reasonable.

Sir, we cannot criminalise people merely because of the action of other people. In this case, if a report was sent to this person without his choice, without

him knowing about it, he is liable. Even if we are building a safeguard, these people then have the ability to exonerate themselves by pointing to their own conduct after the disclosure is made to them. The starting position itself, in my opinion, is bad, that they are exposed to a liability not through their own action. I would therefore urge that this provision be reviewed in the change.

Second, where MAS has investigated the person and released a report to that person as is provided for in the new sections 70A and 71A, which is amended by clauses 33 and 34 respectively. In this change, there is an obligation of confidentiality such that without approval, this report cannot be disclosed by the investigated person to his legal counsel. I believe that this is too restrictive. Once a report is released by MAS, it is likely that MAS has had sufficient time to form a view on the conduct it is investigating. So it is not fair to have these additional restrictions to the person. And we should also align this with the criminal law generally where, I am told, that as soon as the investigative authorities form a view, there is no further need for restrictions on the person under investigation from seeking advice. Advice from competent professionals could also be key to an early and voluntary remedial action taken by the investigated person.

Sir, on balance, I support the Bill as a necessary addition to our financial architecture to try to change the landscape here, and I hope that my comments will be taken into consideration as we put the changes in place.

Mr Speaker, Sir, thank you again for allowing me to speak.

As with the Securities and Futures Act, these amendments to the Financial Advisers Act (FAA) do not incorporate

any of the lessons from the structured deposit saga. Nevertheless, I will say a few words about what amendments I think this Bill should have included in light of that, but did not.

I have two broad points to make, corresponding to the two components that are necessary for a successful functioning regulatory regime, namely, the regulations that are in place and the enforcement of those regulations.

The FAA, as it currently stands, represents a rule-based approach to regulation. This is to be contrasted to a principle-based approach. The Financial Services Authority (FSA) in the UK is widely recognised as the foremost practitioner in the world of the principle-based approach. So what exactly is it?

According to the FSA website and I quote:

"Principles-based regulation means, where possible, moving away from dictating through detailed, prescriptive rules and supervisory actions how firms should operate their business. Principles-based regulation means placing greater reliance on principles and outcome-focused, high level rules as a means to drive at the regulatory aims we want to achieve, and less reliance on prescriptive rules."

At the sitting of this House on 20th October 2008, my colleague, Mr Gautam Banerjee, asked about whether we should move towards a principle-based approach. The response of the Minister then expounded on the roles and responsibilities of the different stakeholders in the sale process, including investors, but did not touch on the merits of Mr Banerjee's suggestion. I will now attempt to explain some of those merits.

The two approaches are not either or, or mutually exclusive. Instead, jurisdictions which practise the principle-based

approach, such as the UK, Taiwan and Malaysia, do so in combination with the rule-based approach, seeking to strike an optimal mix of both.

However, the FAA, as it currently stands, seems to be primarily, if not almost exclusively, rule-based in a single-minded focus on the various steps that are required in the sale process. We set the objective of ensuring that an investor has been properly advised by a financial adviser, but we do not make that the sole requirement. Instead, we have prescriptive rules on the steps that a financial adviser must take.

Well, has this rule-based approach been sufficient or effective to protect investors against mis-selling? I think the ongoing saga of the Lehman-linked structured products has shown up the flaws in this sort of mechanical, tick-the-box, rule-based approach. The financial institutions (FIs) involved may have followed the letter of the rules, but it is clear that they have disregarded the spirit in many, if not most, of the cases.

While it is therefore encouraging that MAS had asked FIs not to be overly legalistic in resolving the complaints, that request by MAS implicitly suggests that FIs could have avoided responsibility if they did choose to be legalistic.

I recently read an article in the Straits Times on 10th January 2009, about the scandal surrounding Satyam Computer Services of India. There was a quote, from the head of a prominent local audit firm that really resonated with me, which was:

"In real life, the rules are a lot of form and no substance."

This quote has nothing to do with structured products, but it highlighted a fundamental truth about frameworks and processes and forms and disclosures. We

can have all the rules in the world, we can require financial advisers to jump through all sorts of hoops in the sale process in an effort to ensure that investors' interests are appropriately protected, but we would still be missing the woods for the trees if we do not understand that the rules are just the ends to the means, and not the ends in themselves.

An exclusively rule-based approach is fundamentally unsound, so long as financial products are sold by sales persons who are remunerated by commission. Sales people being what they are, they will always seek to close a sale in such a way as to comply with the rules with minimal effort by them. It is important to understand that and to have the right regulatory approach in response.

By this, I do not seek to impugn sales persons. I spent one year working as the in-house legal counsel in a sales company, and my current employer's sales team is one of my internal clients. They are not better or worse than other people simply because they work in sales. They are simply intelligent human beings; so they will behave according to how they are incentivised. And when they are incentivised by commissions, they will always seek the path of least resistance in closing that sale, so as to get at that commission.

That is why an exclusively rule-based approach is deficient. The smart sales person will always figure out how to work the system, how to get what they want while not breaking the letter of the rules. When the rules focus only on the different steps to take, the forms to be completed, the boxes to be ticked, then the smart sales person will simply take those steps, complete the forms and tick the boxes in the way that requires the least effort. The question of proper advice for the investor becomes irrelevant to the closure of that sale. Instead, if the objective is to ensure that investors are properly advised,

then the operative rule must be that financial advisers properly advise them. When that is the letter of the rule that financial advisers have to abide by, there is little wriggle room left.

In the course of writing this speech, I have come across a number of very good suggestions of possible refinements to the existing regime. These include the elimination, or at the minimum, a stringent restriction of the so-called Option 4 (no advice option) in the sale process, a cooling-off period for the sale of investment products, disclosure of the commissions and fees earned from the sale of investment products – similar to what takes place for insurance products – and even a separation of general banking and investment sales functions in banks, as has been recommended in Hong Kong.

But these are refinements to existing rules, and they preserve the primacy of the rule-based approach. I believe that it is necessary to introduce principle-based regulations as well, particularly in regulating the sale process. The principle-based approach is not a panacea but is certainly essential. Otherwise, ingenious sales persons will simply find new ways to comply with the rules while continuing to sell investment products that are not in investors' best interests. And we will eventually see a repeat of what happened with the Lehman-linked products.

I now turn to my second broad point, which is much shorter. Quite apart from having the correct regulations in place, the regulator must also be willing and able to vigorously enforce these regulations. Businesses being what they are, the language that they understand best is the language of money, and surely the MAS has to speak the same language to make sure that the regulations are complied with.

Given that the investigations by MAS are still ongoing, I will leave it at that. I will only add that this episode has resulted in widespread cynicism amongst the investing public about the MAS' willingness to enforce the law vigorously, to stand up to the FIs and to protect investors. Rightly or wrongly, the fact remains that this is a widely held view. This cannot be a healthy state of affairs.

I think it is by now very clear that there has been at least some mis-selling by FIs. I therefore urge the MAS to take strong enforcement action in this regard, to demonstrate that breaches of the law will be punished in accordance with the law. This is the only way to restore public confidence in the regulator.

This is not the first time that investors who only wanted to renew their fixed deposits were misled into purchasing investment products that were unsuitable for them. Almost a decade ago, unit trusts were the investment product du jour. Stories abounded of uncles and aunties who wanted to renew their fixed deposits being pressured into buying unit trusts, including narrowly focused, high risk technology funds. With the stock markets then in the frenzied throes of the dot-com craze, technology funds looked like the best things since sliced bread. Well, when the dot-com bombed, these uncles and aunties lost huge chunks of their investments.

Does that sound familiar? Of course, it does. We had a rule-based approach then, and we have a rule-based approach now. And if we keep our rule-based approach without augmenting it with principle-based regulations, we will hear the same story 10, 20 years in the future. I assure Members that so long as we rely exclusively on a form-filling, tick-the-boxes, rule-based approach to regulating the sale process, this will happen again, and again, and again.

We will have more cases like that of Mr Ling Jun Zhi and his wife, retirees who put their life savings of $100,000 into Minibonds. Or Mr Ang, a 68-year old retiree who put $600,000 of life savings in DBS High Notes 5, when he had merely wanted to renew his fixed deposit. Or Mrs Chong, who invested a total of $100,000 in Minibonds, being her life savings and half of her husband's CPF savings. She subsequently suffered a nervous breakdown upon finding out what the collapse of Lehman Brothers meant for her. Worse, her relationship with her husband was adversely affected. When asked what her plans for the future were, she said, "What is there left to plan? There's nothing left for me to plan anymore? Or Ruth, a 38-year-old lady diagnosed with stage 2 breast cancer, who had invested the $20,000 meant for her parents in Minibonds. The FI knew about her medical condition, and still went ahead to sell the Minibonds to her. Because of the loss of this sum, she had to go back to work early against her doctor's wishes, instead of recuperating and recovering from her chemotherapy.

I hope all of these victims have been offered full compensation. These are the most clearly heart wrenching cases. But there are many other victims, whose situations may not be quite as dramatic, but whose lives have similarly been adversely affected beyond their worst nightmares. If MAS provides all the necessary information and facts and figures, we can calculate the financial cost to investors of this whole debacle. But what about the human cost? How do we quantify that?

If we do not adopt more principle-based regulations, if MAS does not take vigorous enforcement action against those who have breached the law, such egregious mis-selling will occur again. The precise form of mis-selling will change, and the investment products involved will differ. But it will happen.

And by not learning our lesson from this episode, we will be guilty of having allowed it to happen.

This Amendment Bill, currently before this House, does not address these issues. I hope that when the findings and recommendations of the MAS come to be debated in this House, those recommendations will include the introduction of principle-based regulation.

Sir, with that, I support the Bill.

Mr Speaker, Sir, I thank the two MPs for their comments on the Bill. Let me address the points raised.

Mr Inderjit Singh was concerned about the investigative powers of MAS. Let me assure him that under section 70A(6), it is intended to deal with those situations where somebody comes across a report which is a secret report, he ought to surrender the report back to MAS. The onus is on him to do so unless, of course, he has the desire to keep the report, then he is liable. If he is not and he has taken efforts to surrender or destroy the copies of the report, then I think that is the way for him to justify his action. So this provision is similar to what is available in the Banking Act. It is to ensure that if a secret report is passed to you by somebody, you should hand it back to the relevant authorities and not keep or propagate it.

The second issue is on how to preserve confidentiality, and I think this is very important because confidence and confidentiality is at the heart of financial services. And here the intention is that when there is a report and there is an obligation of confidentiality, the report should not be disclosed. But if the investigated person wants to seek legal or other financial consultants' advice, then, of course MAS could grant him permission to show those reports to his advisers. So I think there are enough safeguards.

I would also like to thank Mr Siew Kum Hong for his very comprehensive speech about the value of rules-based versus principle-based regulation. As we all know in the real world, in the practical world, it is neither of the ends of the spectrum. We need certain principles to set the framework and then, of course, we need rules or guidelines to be able to make sure that these principles are adhered to. And I believe the way the MAS dealt with the Lehman Brothers' bonds shows how this is done. To the credit of the financial institutions, they put to practice what they believe in and that is the principle of fair dealing and I think the outcome shows that.

I also thank Mr Siew for his suggestions on how to improve the regime. Some of the ideas that he put out is what I have also explained as the kind of measures that MAS is considering and is putting out for public consultation in March, and that is, to consider whether there ought to be a cooling-off period, to look at the incentive structure of the sales process, to separate the financial advisers' processes versus the deposit taking processes in the banks. So these are the same kind of the measures that we are thinking about. And, of course, I have also mentioned during Question Time that MAS is completing its investigation report and is currently in the process of giving the FIs a chance to respond to the report. So, let us not jump the gun. When the investigation is completed, I am sure we will have another chance to debate the proposed amendments to our regulatory regime.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Lim Hng Kiang].

Bill considered in Committee.

The citation year "2008" will be changed to "2009", as indicated in the Order Paper Supplement.

Clauses 1 to 42 inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.

Order for Second Reading read.

4.35 pm

Mr Speaker, Sir, on behalf of the Senior Minister, I beg to move, "That the Bill be now read a Second time."

The Bill seeks to incorporate into the Insurance Act a framework for nomination of beneficiaries in respect of insurance policy proceeds. This framework will give policy owners clear, simple and economical means to decide on how the proceeds from their insurance policies should be disbursed.

The Bill also aims to clarify the insurable interest requirement relating to life insurance policies.

Currently, the Insurance Act does not contain provisions for the nomination of beneficiaries.

Case law suggests that when a policy owner names his spouse and/or children as beneficiaries of an insurance policy effected on his own life, section 73 of the Conveyancing and the Law of Property Act (or the CLPA) will automatically create a statutory trust in favour of the

beneficiaries. The creation of such a trust implies that the policy owner will irrevocably lose all rights and control over the insurance policy concerned, including payouts made when he is alive.

On the other hand, if the policy owner nominates someone other than his spouse and/or children, no nomination will be recognised under section 73 of the CLPA. Since there is presently no provision for nomination of other types of beneficiaries in the Insurance Act, the status of such nominations is uncertain.

Thus, there have been concerns over the apparent ambiguity and inflexibility in the application of section 73 of the CLPA to insurance policies. For this reason, the Insurance Act will be amended to introduce a framework for nomination of beneficiaries in respect of insurance policy proceeds.

In preparing this Bill, MAS has consulted the industry and the public on the policy positions as well as on the draft Bill. Inputs received were carefully considered and have been incorporated into the Bill where relevant.

Mr Speaker, Sir, I will now touch on the key features of the nomination framework for insurance policies.

Nomination of beneficiaries framework

Under the nomination framework, insurance policy owners will be able to choose whether or not to make nominations. If they choose to nominate, they then have the option of making either a revocable or an irrevocable or trust nomination. Nominations may be made at any time.

Revocable nominations

With a revocable nomination, the policy owner will be able to unilaterally change his nomination at any time.

Any payout from the insurance policy made while the policy owner is alive will be paid to him; payouts will only be made to the beneficiaries upon the policy owner's death. Hence, should the insurance policy pay out benefits in the event of the policy owner's illness or disability, he will be able to use these monies to meet his financial needs. For minor beneficiaries, a parent or guardian who is not also the policy owner can give discharge for payments received from insurers.

Any legal entity may be nominated in a revocable nomination.

Irrevocable (trust) nominations

An irrevocable nomination will create a statutory trust in favour of the beneficiaries, similar to the regime under section 73 of the CLPA. Once a trust is created, the policy owner will lose all rights and control over the insurance policy concerned. In exchange, the statutory trust will protect the policy proceeds against claims from the policy owner's creditors.

An irrevocable nomination can only be changed with the consent of all beneficiaries or a trustee who is not also the policy owner. Once an irrevocable nomination has been made, all payouts from the insurance policy, whether made during the policy owner's lifetime or after his death, will go to the beneficiaries. As with revocable nominations, a parent or guardian of a minor beneficiary who is not also the policy owner can give discharge for these payments. Such a parent or guardian can give consent on the minor's behalf for revocation of the nomination as well.

As an irrevocable nomination is a serious undertaking which cannot be

unilaterally reversed, only the policy owner's spouse and/or children can be nominated as the beneficiaries.

Policy owners should only make irrevocable nominations if they are prepared to give away the insurance policy proceeds completely to the beneficiaries. They need to be aware that they will not be able to unilaterally change their nominations later on even if their family circumstances change.

Scope of the nomination framework

Policy owners may make nominations only in respect of (i) life policies and (ii) accident and health insurance policies that have death benefits. This is because only such policies have a savings and investment element for which nominations will be meaningful.

The nomination framework will not apply retrospectively. As such, insurance policies with existing nominations will continue to be subject to the laws in force at the time the nomination was made. For instance, policy owners will not be able to change or revoke existing nominations falling under section 73 of the CLPA.

Insurance policies paid for with Central Provident Fund (CPF) monies

Insurance policies purchased under the CPF Investment Scheme and Dependants' Protection Scheme will be eligible only for revocable nominations. This is because an irrevocable nomination would cause the policy owner who is a CPF member to lose control over any insurance policy proceeds paid out during his lifetime, which would not be in line with CPF Board's policy that members must retain complete ownership of their retirement funds as long as they are alive.

Annuities purchased under the Minimum Sum Scheme will be carved out from the nomination framework altogether to enable CPF Board to retain full control over the disbursement of proceeds from such policies. On the other hand, annuities purchased under the Minimum Sum Plus Scheme will be deemed no different from any other insurance policy as they are paid for with cash.

Insurable interest requirement

Apart from the above amendments to introduce the nomination of beneficiaries framework, other substantive amendments to the Insurance Act relate to the insurable interest requirement for life insurance policies.

A person is said to have an insurable interest in something when the occurrence of the insured event would cause that person to experience a loss, suffer a diminution of a right recognised by law or incurring a legal liability. Policy owners of life insurance policies are required to have an insurable interest in the life assured (ie, the person being covered) under the policy. This is to minimise the risk of someone purchasing a life insurance policy on an unrelated person and then causing the latter's death in order to collect the insurance payout.

While the concept of insurable interest remains relevant, it is unnecessarily restrictive with regard to trust structures. As a trustee is deemed not to have an insurable interest in the settlor and the beneficiaries of a trust, the requirement of insurable interest prevents life insurance policies from being issued in respect of trusts. Individuals are therefore unable to include such policies in their trusts.

Hence, to facilitate the inclusion of such policies in trust structures, the Insurance Act will be amended to allow life insurance policies to be issued in respect of trusts where insurable interest

would have been recognised between two parties within the trust structure were it not for the existence of the trust. In other words, the law will allow a "see through" of the trust to determine whether the insurable interest requirement is satisfied.

Mr Speaker, Sir, the nomination of beneficiaries framework contained in this Bill will clarify the current uncertainty surrounding the disbursement of insurance policy proceeds. It will provide policy owners with a clear, simple and economical way to decide how their policy proceeds should be paid out.

Sir, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Lim Hng Kiang].

Bill considered in Committee.

The citation year "2008" will be changed to "2009", as indicated in the Order Paper Supplement.

Clauses 1 to 13 inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.

Order for Second Reading read.

4.46 pm

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, this Bill seeks to amend the Business Registration Act to allow the Registrar to:

register certain professionals or professional firms which are currently exempted from registration;

facilitate the enforcement of injunctions granted under the Trade Marks Act; and

to make certain miscellaneous and technical amendments.

The Business Registration Act provides the basic regulatory framework for unincorporated businesses, such as sole proprietorships and partnerships. The proposed amendments in the Bill will update the legislation and harmonise certain provisions of the Business Registration Act with the equivalent provisions in the Companies Act.

Sir, I shall now go on to highlight the main amendments proposed in the Bill.

Registration of professionals and professional firms

Clause 3 of the Bill amends section 4 of the Business Registration Act to empower the Minister to make regulations to prescribe any person or class of persons to which the exemption under section 4(1)(g) will not apply.

Currently, section 4(1)(g) exempts professionals and professional firms from registering under the Business Registration Act if they carry on business which under the provisions of law can be exercised only by those who possess certain qualifications prescribed by law. Examples of such professional businesses include law firms, doctors and architects. However, professional practices set up as corporations or limited liability partnerships are required to register with the

Accounting and Corporate Regulatory Authority (ACRA) under the Companies Act and Limited Liability Partnerships Act respectively.

With this amendment, professional practices that are registered as businesses (sole proprietorships or partnerships) will be required to register with the Registrar, if so prescribed by the Minister. This will facilitate a consistent treatment for professional practices across the various legislations.

Enforcement of injunctions granted under the Trade Marks Act

In 2005, the Companies Act was amended to allow the Registrar to direct a company to change its name if the use of the name has been restrained by an injunction granted under the Trade Marks Act. Clause 4 of the Bill amends section 13 of the Business Registration Act to allow the Registrar to do likewise for business names, bringing the Business Registration Act in line with the Companies Act.

Sir, let me now go on to the other amendments. Clause 6 repeals and re-enacts section 29 of the Business Registration Act such that the sum to be collected for compoundable offences will not exceed half of the amount of the maximum fine that is prescribed for the offence, or $5,000, whichever is the lower. This is to align the section with the equivalent provisions for the composition of offences in the Limited Liability Partnerships Act and the new Limited Partnerships Act. The rest of the amendments are of a technical nature.

Mr Speaker, Sir, these amendments will bring the Business Registration Act in line with other existing legislation, such as the Companies Act. This is consistent with our policy to provide a more efficient

means of registering businesses and a more conducive regulatory environment for businesses.

Sir, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mrs Lim Hwee Hua].

Bill considered in Committee.

The citation year "2008" will be changed to "2009", as indicated in the Order Paper Supplement.

Clauses 1 to 7 inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.

Order for Second Reading read.

4.51 pm

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, Singapore intends to accede to the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment. The two Treaties are commonly referred to as the Cape Town Convention and Aircraft Protocol.

The Cape Town Convention and Aircraft Protocol establish an international

legal regime to facilitate aircraft-asset leasing and financing. They aim to overcome the problem of obtaining secure and readily enforceable rights in aircraft and aircraft equipment or what are collectively known as aircraft objects. Such aircraft objects are items of high-value, yet are mobile and without any fixed location. By establishing a harmonised, transparent and efficient legal framework governing such transactions, they create greater certainty amongst intending financiers as to the efficacy of their rights. This helps to lower the risks and, therefore, costs of lending.

Sir, let me highlight the key features of the Cape Town Convention and Aircraft Protocol.

First, they provide for the creation of an international interest in aircraft objects which is recognised in all Contracting States. This facilitates the securing and enforcing of rights in aircraft objects in the Contracting States which now share a common legal framework in this respect.

Second, a set of rules are laid down to govern speedy relief pending final determination of a creditor's claim, and the priority of competing interests and assignments of such interests in aircraft objects. At the same time, there are safeguards for debtors to ensure that remedies are exercised in a commercially reasonable manner.

Third, an electronic International Registry is established for the registration of international interests which gives public notice of such an interest to third parties and protects the priority of the holder of that interest in insolvency proceedings against the debtor. Interested parties may now search and obtain information on who has security interests in such aircraft objects. Importantly, the creditor with a duly registered interest is now able to preserve

his priority against subsequently registered interests or unregistered interests as well as the debtor's insolvency administrator.

Sir, in effect, such a legal regime gives intending creditors greater confidence in their decision to grant credit on highly mobile capital-intensive assets. It enhances the credit rating of equipment receivables and reduces borrowing costs to the advantage of all interested parties.

Singapore's accession to the Cape Town Convention and Aircraft Protocol would facilitate the financing of aircraft objects here by providing greater legal predictability and assurance of lower risk. These would directly translate into lower lending costs and better lending terms.

Notwithstanding the current downturn, in the longer term, we would benefit from opening the local aircraft financing and leasing industry to a growing global market in other Contracting States.

Mr Speaker, Sir, the Cape Town Convention and Aircraft Protocol are flexible in allowing variation in some of their provisions which Contracting States must decide upon and choose by making the necessary Declarations when acceding to the Treaties. I would like to elaborate on the key provisions which Singapore intends to vary.

First, the Cape Town Convention and Aircraft Protocol set out an array of remedies available to the creditor when a debtor defaults or in the event of debtor insolvency. We intend to choose to dispense with the requirement for the creditor to seek leave of court when exercising such remedies. This manner of 'self-help' will give financiers the maximum degree of assurance of their ability to recover possession of an aircraft object following a debtor default or upon the commencement of insolvency proceedings on the debtor. But there will be

safeguards in the form of specific procedures which the creditor will be required to follow in order to prevent abuse of such an arrangement. These are spelt out in the relevant sections of the Cape Town Convention and Aircraft Protocol, and will be further expanded in subsidiary legislation to this Bill in due course.

Second, under the Cape Town Convention and Aircraft Protocol, we will declare that non-consensual rights or interests will have priority over any registered international rights. Essentially, we want a right or an interest in an aircraft object that is recognised and enforceable under Singapore laws to have priority over a registered international interest in that same aircraft object.

Mr Speaker, Sir, this Bill seeks to give effect in Singapore to the Cape Town Convention and Aircraft Protocol. Apart from providing for the Cape Town Convention and Aircraft Protocol to have the force of law in Singapore and for the making of regulations as are necessary or expedient, the Bill makes certain consequential amendments to the Bills of Sale Act (Cap. 24) and the Companies Act (Cap. 50) to align all three legislations on the governance of aircraft object leasing and financing, so as to avoid any conflict between the unique provisions of the Cape Town Convention and Aircraft Protocol and those of existing laws.

Sir, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mrs Lim Hwee Hua].

Bill considered in Committee.

The citation year "2008" will be changed to "2009", as indicated in the Order Paper Supplement.

Clauses 1 to 8 inclusive ordered to stand part of the Bill.

The First to Third Schedule inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.

Order for Second Reading read.

5.00 pm

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, this Bill seeks to make two sets of amendments to the Civil Law Act. The first concerns the lowering of the age of contractual capacity from 21 to 18 years; the second refines the regime applicable to claims resulting from fatal accidents. A public consultation on the draft Bill, in relation to the lowering of the contractual age, was held from 25th August to 19th September last year.

I will now take the House through these two sets of amendments. First, the amendments to the age of contractual capacity.

Lowering the contractual age from 21 to 18 years

Sir, the current minimum age of contractual capacity is tied to the age of majority, which is 21 years in Singapore. Over the years, the Pro-Enterprise Panel

had received feedback that the legal barriers preventing young people from starting and conducting a business should be removed. After conducting a careful study, the Government agrees that the current laws place unnecessary restrictions on young people wishing to do business. Hence, this Bill seeks to de-link the age of majority from the age of contractual capacity, reducing the age of contractual capacity from 21 years to 18 years. Other countries such as Australia, Malaysia and Hong Kong also have 18 years as the age of contractual capacity.

5.02 pm

To facilitate this, besides amending the Civil Law Act, we will also have to make consequential amendments to a few other Acts which are listed in the Schedule to the Bill.

New ability to contract

Clause 6 provides that every contract entered into by a minor who has attained the age of 18 years will have effect as if he were a person of full age, unless otherwise provided. This means a contract made by a person who is at least 18 years of age will now be binding and enforceable against him as if he were a person of full age.

Under clause 6, the person who has attained the age of 18 will be able to enter into contracts to cover a wide range of matters necessary for business purposes. However, clause 6 comes with an important restriction.

Currently persons below 21 years are not able to hold land in their own name or sell their beneficial interests in land. In view of the legal complexity surrounding land ownership, clause 6 provides that the ability of an 18-year-old to contract will

not apply to contracts for the sale, purchase, mortgage, assignment or settlement of any land or a lease of land for more than three years. The Bill will instead allow them to contract for leases not exceeding three years. This should be sufficient for their business needs until they reach 21 years.

Ancillary changes for litigation and business needs

Clause 6 also allows a person who has attained the age of 18 years to litigate in his own name, as if he were of full age, in the types of legal proceedings or actions specified in the Schedule. These are legal proceedings or actions relating to commercial activities, for example, non-fulfilment of contractual obligations. Aside from these areas, we have generally preserved the position under present law that minors cannot enter into any contract for the settlement of any legal proceedings.

Madam, consequential and related amendments will be made to the Bills of Exchange Act, Companies Act, Conveyancing and Law of Property Act, Employment Act, Limitation Act, Limited Liability Partnerships Act and the Settled Estates Act. This is to allow persons who have attained the age of 18 to be employed under a contract, act as directors of companies, form companies or limited liability partnerships, furnish bills of exchange and render contracts of service enforceable against them.

To refine the regime for damages claimed upon fatal accidents

Let me now move on to the second set of amendments.

Law Reform Committee's proposals on loss of inheritance and savings and the definition of "dependant"