CLUB MEMBERSHIPS (Regulation on sale)

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CLUB MEMBERSHIPS:

(Regulation on sale): 23.

Prof. Ivan Png Paak Liang asked the Senior Minister whether his Ministry will take steps to regulate the sale of club memberships, as is done in Australia and Malaysia, so that sellers provide buyers with full information about the number of memberships, transfer fees, facilities, proprietor's financial resources and commitments, and other factors that will affect the value of such memberships and the ability of buyers to re-sell their memberships.

The Minister for Education (Mr Tharman Shanmugaratnam) (for the Senior Minister): Mr Speaker, Sir, Prof. Ivan Png asks if we will regulate sale of club memberships to require fuller disclosure of information.

There are two types of clubs - members' clubs and proprietors' clubs. For members' clubs, which are typically registered under the Societies Act, there is less scope or likelihood of fraud from the sale of memberships, as all the proceeds are collectively owned by the members themselves.

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But I think Prof. Png was referring to proprietary clubs, as he referred to disclosure of information on the proprietor's financial resources and commitments. The Consumer Protection (Fair Trading) Act ("CPFTA") which was introduced last year specifically covers the sale of memberships in such clubs. It prohibits the making of false claims, or misleading consumers through the omission of information and other unfair practices. Consumers may seek compensation from the club of up to $20,000 if the club is found to have contravened the Consumer Protection (Fair Trading) Act.

MAS does not intend to require that the offer of club memberships be regulated under the Securities and Futures Act ("SFA") and Financial Advisers Act ("FAA"). The disclosure requirements that are imposed under these Acts are intended for financial products. Strict disclosure requirements are placed on the sale of financial products so as to improve market efficiency and promote investor confidence in the financial markets.

Some people do purchase social club memberships for investment reasons. However, the main reason that most people purchase club memberships is to enjoy the facilities and services offered by the clubs. Regulation of the sale of club memberships under SFA or FAA would impose unnecessary additional costs on the sellers and, indirectly, on the buyers. Given that there are already safeguards under general law, the cost of additional regulation under SFA or FAA would not be justified.

However, clubs may choose to structure themselves as companies and offer shares with membership privileges. Such share offers would be subject to prospectus requirements under SFA.

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Clubs are free to offer memberships in this way if they see a competitive advantage in subjecting themselves to higher and legally-binding disclosure requirements.

Prof. Ivan Png Paak Liang: Sir, I believe that a good and vibrant club sector will contribute to the growth of our leisure industry, which we are trying to develop and is a subject for further discussion today. Would the Minister not consider how to build up this good regulatory environment for clubs as part of the bigger leisure industry sector? How about considering forming a working group to look at this in a more serious way? In the last few years, practically no clubs had been formed. Some would say that, in part, it was because of the weak regulatory regime.

Mr Tharman Shanmugaratnam: That is a developmental question - whether we should find ways to encourage more clubs to be formed. Intuitively, I think it is a good idea. But as to whether it is lax regulation, or lack of confidence on the part of consumers and investors, that is inhibiting the growth of clubs, I am not so sure. I think the landscape we have is a fairly clear one. For the average consumers, we now have the CPFTA which provides reasonable protection and compensation. For the informed and larger investors, there is recourse through the law; there is recourse under common law and contract law which in fact has been used in the recent past. So I think we do not want to over-regulate. There are one or two other countries which actually put it under the securities regulator, and I am not sure that is the right move for us. Let us put the onus on the part of the larger investor to get more information if he needs it, and otherwise live with the caveat emptor regime, a little messy, but I think it works reasonably well, and the courts are always there to provide recourse.

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Prof. Ivan Png Paak Liang: Would the Minister support forming a working group to look into this further to see what the benefits would be of such regulation vis-a-vis the cost?

Mr Tharman Shanmugaratnam: I see no reason not to review the matter. I think MAS, MTI and the Ministry of Home Affairs can discuss this. I do not think it is a burning issue. But I see no reason not to review the matter.