FINANCIAL ADVISERS (AMENDMENT) BILL

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FINANCIAL ADVISERS (AMENDMENT) BILL: Order for Second Reading read.

The Minister for Education (Mr Tharman Shanmugaratnam): Mr Deputy Speaker, Sir, on behalf of the Senior Minister, I beg to move, "That the Bill be now read a Second time."

Sir, this Bill seeks to amend the Financial Advisers Act ("FAA") concurrent with the amendments to the Securities and Futures Act ("SFA") that have been moved today. It aims to ensure that the regulation of Financial Advisers remains business friendly, while still maintaining high standards that promote the fair treatment of customers.

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The MAS has taken into account the feedback received from the industry and the public following public consultation on the draft Bill that was conducted in April 2004.

Financial advisers play an important role in financial markets, particularly in servicing the retail markets. They are a key conduit by which a wide range of investment products - ranging from securities, to collective investment schemes like unit trusts, to life insurance policies - are introduced and marketed to investors. The FAA was introduced to provide a regulatory framework for such market intermediaries that would support high levels of professional standards across the industry.

Sir, I shall now highlight the key amendments that are proposed in the Bill.

Excluding generally circulated advice from reasonable basis requirement

First, clause 15 allows MAS to exclude generally circulated advice from the reasonable basis requirement. Financial advisers are required under the FAA to have a reasonable basis for their recommendations. They must take into account each client's investment objectives, financial situation and particular needs when giving advice or making a recommendation on an investment product. The reasonable basis requirement should not, however, be applicable in situations where the advice provided is not targeted at any specific person. Such "generally circulated advice" may, for example, be made via marketing brochures or given at seminars and workshops. The criteria for what constitute generally circulated advice will be set out in Regulations.

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Extending the scope of MAS' inspection to exempt entities

Second, the Bill allows the MAS to inspect exempt entities. Exemptions from licensing and business conduct requirements are currently given to entities that pose minimal risks. Limitations are imposed on the scope of financial advisory services that such entities can undertake. For instance, they are not to undertake any marketing of collective investment schemes or arrange any life insurance contract. Currently, MAS does not have explicit powers to inspect such exempt entities to ensure that they keep to the limitations imposed. To enhance its regulatory oversight and to ensure consistency with the SFA, clause 12(f) empowers MAS to inspect these exempt entities.

Extending MAS' powers to issue Prohibition Orders

Next, powers to issue Prohibition Orders. MAS currently has the power to issue a Prohibition Order against undesirable persons to bar them from providing financial advisory services in Singapore. The Act currently sets out certain criteria upon which MAS may issue such an Order. These include where MAS suspends or revokes the licence held by the person, where MAS has reason to believe the person is contravening the FAA, or where the person has been convicted of an offence under the FAA, or of an offence involving fraud or dishonesty in Singapore or elsewhere. Clause 20 expands the circumstances under which MAS may issue a Prohibition Order to instances where a person has been convicted of any offence in respect of financial advisory activities in a foreign country.

Clarifying aggrieved parties' right to appeal

Next, right of appeal. The Bill also clarifies the right to appeal of aggrieved

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parties. The FAA currently provides for a right of appeal to the Minister if parties are aggrieved by MAS' administrative decisions, such as the rejection of an application for a licence or the revocation of a licence. There is ambiguity as to whether third parties may appeal to the Minister against these decisions. Clause 11 clarifies that only the applicant for the grant, renewal or variation of a licence, or a person whose licence is revoked or suspended, may appeal to the Minister.

Easing the restriction on granting unsecured credit

Next, unsecured credit. Sir, the Bill also introduces amendments that mirror those in the Securities and Futures (Amendment No. 2) Bill that we have just passed. The current restriction on licensed financial advisers granting unsecured credit facilities to their directors, officers, employees or representatives for trading purposes will be removed under clause 14. As with the SFA, there are sufficient existing safeguards in the FAA on loans to directors, officers and employees to mitigate the risk of licensed financial advisers being excessively exposed to such credit risks.

Expanding the grounds for refusing grant or renewal of licence, or revoking a licence

The grounds under which MAS may refuse an application for the grant or renewal of a licence, or revoke a licence, will be expanded under clauses 6 and 7 to include cases where the applicant or licensee furnishes false or misleading information to the MAS. Such acts call into question the integrity of the person concerned.

Conclusion

Sir, in conclusion, the Bill introduces changes which will enhance MAS' quality

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of supervision and will, over time, help to raise the level of professionalism in the financial advisory industry. The updated legislation will encourage market competition, while moving up the quality bar. It will support the evolution of better quality advice and higher service standards by financial advisers, and strengthen consumer confidence in the industry.

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 Tharman Shanmugaratnam].

Bill considered in Committee.

[Mr Deputy Speaker in the Chair]

The Chairman: The citation year "2004" will be changed to "2005", as indicated in the Order Paper Supplement.

Clauses 1 to 24 inclusive ordered to stand part of the Bill.

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