GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION PRIVATE LIMITED (Measures taken in response to Auditor-General's findings)

Mr Low Thia Khiang asked the Minister for Finance what measures have been taken by the Government of Singapore Investment Corporation Private Limited in response to the following findings by the Auditor-General: (i) nine breaches of credit limits not being reported to the head of department; (ii) inadequate monitoring of credit limits of individual departments and trading limits of foreign exchange dealers; and (iii) purchases of securities from unauthorised issuers.

The Deputy Prime Minister and Acting Minister for Finance (BG Lee Hsien Loong): Mr Speaker, Sir, I would like to assure the Member that GIC takes the findings of the Auditor-General seriously and has taken steps to address all of them.

On the nine breaches of credit limit, the main concern was that the breaches had not been brought to the attention of the head of department. These breaches were actually technical in nature, arising from the basis of calculation. Essentially, the GIC officer concerned had used the "nominal value" of the bonds, instead of the "market value", to calculate the exposure. The "nominal value" calculations were well within the limits, but based on the "market value", the credit limits would have been exceeded. The breaches were all very small in magnitude, ranging from only 0.028% to 0.14% of the value for each of the transactions. Besides, the parties involved in those breaches of credit limits were reputable financial institutions. The risks of default from these breaches were insignificant.

As pointed out by the Auditor-General, each department in GIC already has its own system to monitor adherence to credit limits. In addition, GIC has set up an independent Risk Control Unit to monitor compliance with these limits and to report on any breach of the limits, technical or otherwise, to the appropriate management level. This Unit also monitors the trading limits of foreign exchange dealers.

The Member also asked about the purchase of unauthorised securities by GIC on behalf of the Board of Commissioners of Currency (BCCS). Under the Currency Act, the Board's funds have to be invested in securities which are guaranteed by foreign governments or international financial institutions. The problem arose because GIC had, on behalf of BCCS, purchased certain securities which were not explicitly guaranteed by a government, although they were issued by Government or State authorities. These securities were regarded in the market as implicitly guaranteed by Government. However, GIC has since been advised by the Attorney-General's Chambers that to comply with the Currency Act, the security must be explicitly guaranteed by Government. GIC now follows strictly the interpretation of the Currency Act to invest only in securities with explicit government guarantees.

Mr Low Thia Khiang: Sir, prior to the findings of the Auditor-General, did the management of GIC know about all these breaches of credit limits and the buying of securities from unauthorised issuers?

BG Lee Hsien Loong: I presume, Mr Speaker, Sir, that these were items which were discovered by the Auditor-General in the routine course of his audit.

Mr Low Thia Khiang: In other words, the GIC did not discover these breaches prior to the findings of the Auditor-General.

BG Lee Hsien Loong: Mr Speaker, Sir, as I have explained, in one case, it was a technical interpretation whether to use the nominal value or the market value of the bond to calculate the exposure limit. In the other case, it was a matter of judgment whether an instrument which is guaranteed by the Government needs to be explicitly guaranteed or can be implicitly guaranteed. I presume the management must have felt that these were within limits. The Auditor-General disagreed. We have decided to follow the Auditor-General's interpretation.

Mr Low Thia Khiang: Sir, the Deputy Prime Minister in his answer said that the breaches were actually technical, ranging from only about 0.028% to 0.14%. I would like to know what were the amounts, based on these percentages.

BG Lee Hsien Loong: There were nine transactions. The amounts were between US$200,000 and US$800,000 each, adding up probably to US$5 million.

Mr Low Thia Khiang: Sir, would the Deputy Prime Minister disclose who were the unauthorised issuers which the GIC purchased the securities from?

BG Lee Hsien Loong: Mr Speaker, Sir, I do not have the breakdown of the securities. I do not think that it is a practice for GIC to reveal what securities it has been buying.