MONEY-CHANGING AND REMITTANCE BUSINESSES (AMENDMENT) BILL

Order for Second Reading read.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Money-changing and Remittance Businesses Act has not been amended since its enactment in 1979. Over the last decade, the number of money-changers and remitters licensed under the Act has grown significantly to 452 and 97 respectively. This has been accompanied by a rise in the number of complaints from members of the public, including tourists. These complaints range from poor service, uncompetitive exchange rates, delays in remittance of monies to beneficiaries, to more serious cases of unlicensed operators and fraud. In one instance, a foreign partner of a licensed remitter absconded with monies of 35 customers amounting to $24,000. There is also concern that money laundering could be perpetrated through money-changers and remitters. It is therefore timely that the Act be revised.

I will now explain the major provisions of the Bill.

Remittance business is presently not defined under the Act. Clause 2 of the Bill introduces such a definition. It also clarifies under section 2 that any reference in the Act to a document or a record would include that stored on film, disc, magnetic tape or on any other medium.

To deter illegal money-changing and remittance businesses, clause 3 of the Bill proposes to raise the maximum term of imprisonment for the conduct of such business without a licence from six months to two years, and the maximum fine from $5,000 to $50,000. For a continuing offence, a maximum fine of $1,000 per day is proposed. In considering this proposal for more stringent penalties, Members of the House may wish to note that the Court had commented in sentencing an unlicensed money-changer and remitter in July 1995 that the present maximum penalties of $5,000 and/or six months imprisonment were too light.

To ensure that licences are granted only to persons who are fit and proper, it is proposed that the Monetary Authority of Singapore (MAS) be empowered to request for any information as considered necessary to assess applications for or renewal of licences. In the case of a renewal, a provision has been introduced in clause 4 of the Bill to clarify that a licensee may continue with his business pending the outcome of his application.

As a safeguard, remitters are presently required, as a condition of their licences, to lodge a banker's guarantee of $100,000 with MAS for the purpose of compensating customers for losses in the event of default by the remitter. Clause 5 of the Bill proposes to formalise this safeguard under the Act.

A licensee who wishes to set up an additional place of business presently has to apply for a separate licence for each additional location as the Act does not expressly provide for branching. To streamline procedures for branching, clause 5 of the Bill also introduces a provision to allow branches to be established by money-changers and remitters with approval from MAS, and to allow MAS to charge licence fee for each branch. A fine not exceeding $10,000 is proposed for contravention of this provision as well as a fine of $1,000 per day for a continuing offence.

Although stipulated as a condition of licence, it is a common complaint by members of the public that some money-changers and remitters do not display their licences. The Bill introduces a provision to require licences to be displayed in a conspicuous place where such business is being conducted. Any non-compliance would be deemed an offence carrying a maximum fine of $5,000.

The Act currently does not expressly empower MAS to determine the period for which a licence may be renewed. Clause 6 of the Bill clarifies that MAS may determine the period of validity of licences, which would normally be for one year. It also empowers MAS to prescribe different licence fees in respect of different classes of licences and clarifies that licence fees would not be refundable should a licence be cancelled or revoked, or if a licensee were to cease business, before expiry of the licence.

To serve as a deterrent, a new provision is proposed in clause 7 to make it a punishable offence for any person to furnish false or misleading statements to MAS when applying for or renewing a licence. The proposed penalty is a fine not exceeding $10,000 or imprisonment not exceeding one year, or both.

Currently, licences would be withdrawn from any licensee who becomes bankrupt. Clause 8 proposes to formalise bankruptcy as a ground for withdrawal under the Act. It also proposes that the Act be amended to clarify that a revocation order for a licence would become effective 30 days after it has been served on a licensee. However, if a licensee has appealed to the Minister within the 30 days, the order would not become effective until the decision by the Minister.

A new provision is proposed in clause 9 to require licensees to keep complete records of all their money-changing and remittance transactions and to retain such records for at least six years to facilitate investigations for drug money laundering and other illegal activities, and for inspections by MAS. Non-compliance would be an offence carrying a maximum fine of $10,000.

Clause 9 also proposes that MAS be given the power to require licensees to submit returns and any other information required for its supervisory purposes. The proposed maximum penalty for non-compliance of this provision is a fine of $5,000 and a fine of $1,000 per day for a continuing offence.

MAS is presently empowered under the Act to inspect the premises and the books and documents of a licensee or person suspected of conducting money-changing or remittance business without a valid licence. A person who fails to allow such inspection or to produce any book or document for this purpose is liable on conviction to a fine of not more than $2,000. As the maximum penalty for non-compliance with this provision is relatively light, the Bill proposes that the present penalty be increased to $5,000 as a more effective deterrence against any action to impede or obstruct MAS in its inspection. Further, a penalty of $1,000 per day for a continuing offence is also proposed.

To allow MAS to take appropriate measures to protect the interests of the public, clause 11 proposes that MAS be empowered to issue directives to a licensee to rectify or restrict its operations where an inspection by MAS has revealed that such business had been conducted in a manner detrimental to the interests of its customers. There are similar provisions in the Banking Act and the Finance Companies Act.

To prevent misuse of customer funds by remitters, clause 12 of the Bill introduces a provision to require funds received by a remitter from customers for remittance to be segregated from its own funds and to deposit these customer funds in a trust account with a bank. A maximum fine of $50,000 or two years imprisonment or both, is proposed for any breach of this provision. Such segregation of customer funds from the own funds of a financial institution are also provided for in the Securities Industry Act and Futures Trading Act.

Clause 12 also introduces a provision to require money-changers and remitters to appoint external auditors to conduct annual audits of their operations and compliance with relevant laws and regulations. The provision also empowers MAS to remove auditors whose standards of audit are found unsatisfactory.

Presently, banks conducting money-changing and remittance businesses are exempted from the Act. Clause 14 proposes that the exemption be extended to:

(a) merchant banks approved by the MAS; and

(b) finance companies approved by MAS to conduct money-changing and remittance businesses.

The implementation of the proposed amendments to the Act would serve to better protect the interest of the public and improve the standard of service provided by money-changers and remitters as they strengthen the effectiveness of the Act in deterring fraud and other misdemeanours.

Sir, I beg to move.

Question proposed.

Dr Ow Chin Hock (Leng Kee): Mr Speaker, Sir, we should view the proposed Money-changing and Remittance Businesses (Amendment) Bill 1996 in a wider perspective. The Bill is part of a series of amendments to the legislation on the supervision of the financial system by the Monetary Authority of Singapore. Sir, you may recall that over the last few years, the Banking Act, the Finance Companies Act, and the Futures Trading Act have been amended to ensure that these Acts remain effective in the supervision of the growing and ever changing financial markets. I note that the Minister has just introduced another Bill to amend the Banking Act even before this current Bill is passed.

Sir, the amendment Acts are critical in maintaining the soundness of our financial system and in protecting the interests of customers of the financial services. I therefore support the Money-changing and Remittance Businesses (Amendment) Bill. Further, in view of growing international concerns about money laundering activities, I agree with the Minister that the Act should also be tightened to prevent and deter money laundering activities from being carried out via these two financial businesses.

As the Minister mentioned, the Money-changing and Remittance Businesses Act was introduced in 1979. It has been in force for nearly 17 years without amendment. We have reason to believe that the demand for money-changing service has increased rapidly over the last 17 years. Firstly, there has been a sharp increase in the number of tourists visiting Singapore. Secondly, more Singaporeans are travelling overseas on leisure or on business, and more frequently. During the last 17 years, demand for remittance service must have also increased significantly, with the increase in the number of foreign workers in Singapore. Remitters no longer just service older Singaporeans who remit money to their relatives in China, India and elsewhere in Southeast Asia, but remitters also cater for foreign workers who remit their earnings to their families overseas. The business of money-changing and remittance must have expanded correspondingly in response to the increase in demand. So may I find out first from the Minister the current number of both licensed money-changers and remitters as compared to that of 17 years ago. I note that the Minister mentioned that the number of licensed money-changers has increased to 452 in 1995. May I clarify with the Minister whether this figure applies only to the money-changers or to both money-changers and remitters? What is the estimated value of the money-changing transactions and what is the amount of remittance handled per day?

As the money-changing and remittance businesses deal mainly with the man-in-the-street, it is therefore important to ensure that the Act remains effective in protecting the interests of the small customers and that these businesses are operated in a prudent and proper manner. In this context, I note that the Minister mentioned that there has been a rise in the number of complaints against money-changers and remitters from members of the public and tourists in recent years. May I ask the Minister to provide some specific data on the rise in such complaints? The Minister also reported a case where customers suffered a loss. May I also ask the Minister to report to this House whether there have been other cases where customers have suffered such losses as a result of default by the licensed remitters and, if so, what is the total amount of such losses?

I now turn to a few specific provisions of the Bill. Clause 3 requires the licensing of persons who wish to engage in money-changing or remittance business. I support this requirement as it is necessary to ensure the integrity of these two businesses and to prevent the man-in-the-street from being cheated.

Clause 5 requires a person who is granted a remittance licence to furnish a sum of $100,000 as security deposit with MAS. With the increase in remittance business, may I ask the Minister, would it be adequate for the security deposit to be set at this level, namely, $100,000? Another question is: why is there no minimum capital fund requirement imposed on remitters, and for that matter, on money-changers, to ensure that they would have sufficient funds to protect the interest of their customers?

Clause 11 introduces new section 17A which requires remitters to segregate funds received from customers for remittance from their own funds, and to deposit these customers' funds in a trust account with a bank. The segregation of customers' funds from the remitter's own funds is a good business practice for customer protection, and in preventing dishonest remitters from using the customers' funds for other purposes. The proposed penalty for contravening or failing to comply with the provisions of this clause is a fine of up to $50,000 or a jail term of up to two years, or both. May I find out from the Minister whether the penalty is appropriate in relation to the amount of remittance handled?

Clause 8 requires the licensees to keep proper records of their transactions; in addition, clause 11 also introduces a new section 17B which requires the licensees to appoint external auditors to audit their businesses annually. These requirements would help to ensure that such businesses are run in a proper manner, and that records are kept to provide an audit trail of transactions, in order to deter illicit transactions from being conducted via such businesses. However, these requirements impose additional costs on the licensees. May I ask the Minister whether a standard form for such required information will be provided, and standard auditing procedures will be stipulated so as to ensure consistency and perhaps lower the additional costs involved?

With the implementation of the proposed amendments, I believe that the standard and quality of money-changing and remittance businesses will improve significantly, and the interest of the public who make use of such services would be better protected.

Sir, apart from the queries and clarifications, I fully support the amendment Bill.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, Dr Ow has asked about the change in numbers of money-changers and remitters between December 1979 and end of last year. In 1979, there were 240 money-changers. As at the end of December last year, there were 452. As far as remitters are concerned, there were 54 in 1979 and today there are 99.

Dr Ow also wants to know what is the estimated value of the money-changing transactions and the amounts of remittance handled per day. Unfortunately, complete information on the volumes of money-changing and remittance businesses is not available as many of these businesses are small sole-proprietorships and participants are also engaged in other businesses such as provision shop and stationery shop transactions and therefore do not keep proper records of their transactions. This is especially so for the large number of small money-changers.

As for remittance businesses, the volumes vary widely, depending on whether the licensees conduct remittance business as their main business or as a secondary activity. Based on MAS' inspection of some remittance licensees, MAS has found that some of them who conduct remittance business as a secondary business handled only about $50,000 worth of remittance business a month. Some medium-sized licensees handle $500,000 worth of remittances monthly while some licensees whose main business is remittance can handle up to $3 million each per month.

As one of the provisions of the Bill is to require licensees to keep proper records of their transactions, MAS may consider asking licensees to submit periodic returns on their business volumes in order to have more accurate information on the size of this business in the future. However, the benefits of collecting these returns will have to be weighed against the additional cost that the licensees would have to incur in complying with the requirement.

Dr Ow has also asked whether there was data available on the rise of complaints against money-changers and remitters. The number of complaints against money-changers and remitters has increased from 10 in 1990 to 22 in 1995. In the first quarter of 1996 alone, six complaints were received. A number of the complaints against money-changers were made by tourists.

He has also asked whether there were cases where customers suffered losses as a result of default by the licensed remitters and, if so, what are the amounts involved. There was one case in 1991. Fortunately, the total number of such defaults has been relatively small. There was one case in 1991 where a foreign partner of a licensed remittance agency absconded with customers' funds amounting to $20,000. Prior to 1992, the security deposit for a remittance licence was only $10,000, so that the claimants could not be refunded in full. They eventually got back half of their remittance from the security deposit. Total losses of $10,000 were suffered by 34 customers of the licensee.

As a result of these incidents, security deposit for remittance licence was increased from $10,000 to $50,000 in December 1991. Despite the increase in the security deposit, the number of remitters continues to increase and their scale of operations also expanded rapidly because of the large increase in the number of foreign workers. From MAS' inspection of remittance in late 1994, it was noted that some of the remitters handled more than $150,000 per month. Consequently, the security deposit was again raised to $100,000 in mid-1995. So far, we have not encountered many more defaults. So, hopefully, this $100,000 is sufficient for the time being.

Dr Ow also wants to know why there is no minimum capital fund requirements imposed on remitters and money-changers. Money-changers do not keep customers' funds as money-changing transactions are on-the-spot transactions. Therefore, there is no need to require money-changers to keep minimum capital funds to protect their customers' interest. They conduct on-the-spot cash transactions. In the case of remitters, they are required to furnish a security deposit of $100,000 in the form of bank guarantee. This is for the time being considered sufficient protection for the depositor rather than a minimum capital amount. The reason is because the minimum capital sum held by the company may not be entirely available for meeting defaults because if the remitter goes bankrupt, such capital funds would have to meet all the other creditors' requirement and only a portion will be available to protect the remitter's interest. So security deposit is a better form of insurance for the remitter.

Dr Ow has also asked whether the penalty for contravening section 17A is sufficient for the severity of the offence. MAS, following an inspection of remitters in late 1994, discovered, as I mentioned earlier, that some of the remitters were handling remittance of more than $150,000 per month. In view of this, the penalties were increased with a fine of $50,000 or jail of up to two years. MAS considers that these penalties are sufficiently stringent to deter licensees from breaching this requirement for the time being.

Dr Ow is also concerned whether the requirement under section 17B for licensees to appoint external auditors may not increase their cost unnecessarily. Under this section, money-changers and remitters are required to keep and maintain records of all transactions of $10,000 and above by customers. The format for the register, which includes date of transaction, particulars of customer, and amount transacted, is stipulated by the MAS in a standard format. The records and register should be made available for inspection by the MAS from time to time.

MAS has also the power to prescribe auditing procedures but it has been the MAS' policy to leave this issue to the auditors themselves to set their own standards. If an auditor appointed does not meet his obligations according to MAS, the licensee will be required to appoint new auditors. The purpose of the proposed annual audit of licensees by external auditors is to ensure that the licensee complies with the relevant laws and regulations and the customers' funds are properly segregated and accounted for. While this may increase the operating cost of licensees, it is considered an essential measure to protect the interest of the public and the remitters, particularly against a background of increasing volume of money-changing and remittance businesses due to increase in tourist traffic and foreign worker traffic.

I think I have answered Dr Ow's questions

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. -- [Dr Richard Hu Tsu Tau].

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