Thailand Regulator Lays Down New rules for Multi-Class Structure For Existing Mutual Funds

The Securities and Exchange Commission (SEC), Hong Kong allows existing mutual funds to offer multiple classes of investment units to investors and allows classification of investment units by currency.

SEC Secretary-General Vorapol Socatiyanurak said: the SEC has allowed mutual funds to offer multiple classes of investment units either they are existing or newly-established mutual funds while only the latter are permitted under existing regulations. In addition, asset management companies could offer multiple classes of investment units classified by currency to investors. The revision aims to facilitate more flexibility for asset management business; broaden business opportunities; and provide a wider variety of investment choices for investors which contribute the development in Thai capital market.

In this regard, the multi-class structure offered by existing mutual funds must not prejudice the right of existing unit holders.  Details of the proposed structure must be defined in the amended investment fund scheme, such as classes of investment units, right and return of each class, fees or other expenses payable by unit holders of each class, which must conform to each class of investment units.

Due to the fact to Thai investors are not allowed to invest in foreign-currency investment units offered in Thailand. The asset management companies, therefore, must clearly clarify that the products are offered only to foreign investors.

“The SEC promotes private sector’s operational flexibility and expansion of business opportunity amidst the dynamic financial environment. This will help serving investors’ demands,” concluded Mr. Vorapol.

Hong Kong Regulator Concludes Consultation on Proposals to Enhance Regulation of Non-Corporate Listed Entities

The Securities and Futures Commission (SFC) has published conclusions on proposals to enhance the regulatory regime for non-corporate entities that are listed on The Stock Exchange of Hong Kong Ltd (SEHK). 

Respondents in general supported the proposals, with comments on technical issues. They agreed that the proposals would help enhance investor protection as well as market transparency for all listed entities, whether they are companies or other types of business organisation.

The SFC will proceed with the proposals and make appropriate recommendations on the legislative amendments to the Government.

The main points of the consultation conclusions are as follows:

• extend the SFC’s supervision and investigation powers under Parts VIII and X of the Securities and Futures Ordinance (SFO), the market misconduct provisions under Parts XIII and XIV of the SFO, the requirement to disclose price sensitive information under Part XIVA of the SFO and the disclosure of interests provisions under Part XV of the SFO to expressly cover non-corporate listed entities (Note 1);
• clarify that, for listed depositary receipts, the overseas issuer whose shares/units are the underlying shares/units (and not the relevant depositary bank) is the “issuer”; and
• exclude entities whose only listed securities are debentures from the Part XV disclosure of interests regime.

Hong Kong Regulator Releases Consultation Conclusions on Regulation of Electronic Trading

The Securities and Futures Commission (SFC), Hong Kong published a consultation conclusions paper on proposals to enhance the regulatory framework for electronic trading (Note 1).

The SFC received 34 written submissions from industry associations, brokerage firms, investment banks and individuals in response to the proposals contained in the consultation paper.  Respondents generally supported the proposals.  Most of the initiatives have been adopted in the conclusions. 

“The initiatives are intended to provide clarity to intermediaries on the standards that they are expected to meet when they conduct electronic trading.  They must have appropriate policies, procedures and controls in place to ensure their electronic trading activities will not pose undue risks to the market,” the SFC’s Chief Executive Officer Mr Ashley Alder said.

“These standards, which are in line with regulations in major international markets and the principles published by the International Organization of Securities Commissions, will help maintain integrity as well as confidence in the market,” he added.

Key aspects of the regulatory regime include:

• Management and supervision- The responsibility to ensure compliance rests with the responsible officers or executive officers and the management of the intermediaries. 
• Adequacy of system- Intermediaries should ensure their electronic trading systems are subject to testing and meet regulatory standards with respect to reliability, controls, security and capacity and that contingency measures in place.  
• Record keeping- Intermediaries should keep, or cause to be kept, proper records on the design, development, deployment and operation of their electronic trading systems.
• Risk management - Intermediaries should put in place risk management and supervisory controls to monitor orders and trades, including automated pre-trade controls and regular post-trade monitoring. 

The new regime which includes amendments to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission and the Fund Manager Code of Conduct will come into effect on 1 January 2014.  The Guidance Note on Internet Regulation issued in March 1999 will be repealed on the same date.

"The Financial Holding Companies Bill 2013" - Second Reading Speech by Mr Tharman Shanmugaratnam, Deputy Prime Minister, Minister in charge of MAS

This is an official speech published on Monetary Authority of Singapore website.

The Financial Holding Companies Bill introduces a regulatory framework for the Monetary Authority of Singapore (MAS) to regulate financial holding companies (FHCs) and their financial groups. For the purpose of the Bill, an FHC is a non-operating holding company which is incorporated in Singapore and holds a Singapore bank or insurance subsidiary, or both.

The FHC Bill will provide greater clarity to the industry and other stakeholders on the rules and standards applicable to financial groups organised under FHCs in Singapore. It is common for internationally active financial groups to be organised under holding companies. As Singapore develops as an international financial centre, more global banks and insurance companies are locating parts of their global operations in Singapore. At the same time, our domestic financial institutions are growing regionally and some may find a holding company structure more suited to their purpose.  

The Bill will clarify and ensure appropriate MAS’ prudential oversight of financial groups in Singapore. Group-wide supervision allows MAS to assess the impact that a financial institution’s relationships with other entities in the group may have on its safety and soundness. The concept of group supervision is of course not new. Financial groups in Singapore are mostly headed by banks, and are already subject to group-wide supervision by MAS. The Bill extends group-wide supervision by MAS to an FHC and its financial group. It is aimed at mitigating intra-group contagion risks, preventing the multiple use of capital within the group, and limiting concentration risks at the group level.

The FHC Bill is in line with international regulatory developments. Key international supervisory committees such as the Joint Forum have called for greater oversight of unregulated entities in financial groups, in particular the parent FHC.² The IMF has also cited the limited legal authority over FHCs of cross-sector financial groups as a weakness in some financial systems. Many regulators are therefore widening their scope of group-wide supervision to include FHCs, either directly through an FHC regulatory framework or indirectly through a regulated entity like a bank or insurance subsidiary. Australia, Canada and the US are among the countries that have established legal frameworks for FHCs. The EU is moving in the same direction of strengthening regulatory authority over FHCs. 

However, the introduction of this Bill does not mean that MAS is advocating a holding company structure for financial institutions in Singapore. Whether a financial group organises itself under an FHC or is held directly by a bank or insurance company is a business decision. MAS, as the financial regulator, needs to ensure that all financial groups in Singapore, regardless of their holding structure, can be effectively regulated and supervised under an appropriate regulatory framework.

MAS has consulted the industry on the FHC regulatory framework. The first consultation in February 2012 sought views on the broad policy and regulatory principles underpinning the framework. The second consultation in October 2012 invited comments on the draft FHC Bill. MAS has considered the views and feedback received and taken them into account in refining the FHC Bill, where appropriate. 

Mdm Speaker, let me expand on the key provisions of the Bill.

KEY PROVISIONS IN THE FHC BILL

FHC Bill Complements Banking and Insurance Acts

The FHC Bill draws upon the same regulatory toolkit as in the Banking Act (BA) and Insurance Act (IA). These tools will include requiring regulatory approval for acquiring or holding of major shareholdings in an FHC; putting in place limits on an FHC’s credit and investment exposures, and giving MAS powers relating to key appointments, supervision, and inspection.

Scope of Regulation

The Bill does not require every FHC in Singapore to be regulated by MAS. Unlike banks and insurance companies, an FHC is a non-operating holding company, and will not engage in financial transactions directly with the public. It may also not be exposed to the same risks that a bank or insurance company may encounter in the course of business. In deciding which FHCs to regulate, MAS will consider how the regulation of the FHC and its financial group can enhance the effectiveness of prudential oversight of the financial group. 

The FHC Bill sets out the following criteria by which MAS will assess whether an FHC should be designated for regulation.  

(a) Ultimate parent of Singapore financial groups MAS will regulate an FHC if it is the ultimate parent of a financial group with a bank or insurance subsidiary in Singapore. In such cases, MAS is the home supervisor of the financial group and has responsibility for group-wide supervision of the financial group.

(b) Intermediate FHCs within financial groupsThere are FHCs that are themselves subsidiaries of a parent FHC or financial institution. For these intermediate FHCs, MAS will assess the importance of the FHC’s bank or insurance subsidiary to Singapore’s financial system, or to the intermediate FHC group, when deciding whether to regulate the FHC. For foreign-owned FHCs, an additional consideration will be the extent to which the parent holding company incorporated overseas is subject to effective group-wide supervision by its home supervisor.

MAS will list the names of FHCs designated for regulation in an order published in the Gazette. 

While FHCs that are not designated will not be regulated under the FHC Bill, MAS may require these FHCs to provide information necessary for MAS’ surveillance and supervision functions. 

Control of Shareholdings

Major shareholders of an FHC may be in a position to exercise indirect influence or control over its bank or insurance subsidiaries through their shareholding interests in the FHC. Hence it is necessary to require shareholders with substantial or controlling interests in designated FHCs to obtain approval for their shareholding interests, just as the BA and IA currently require for significant stakes in Singapore-incorporated banks and insurance companies. The shareholding and control thresholds at which approval will be required will be consistent with existing thresholds under the BA and the IA. MAS will consider whether the shareholders are “fit-and-proper” and the nature of their likely influence over the conduct of the FHC when assessing applications for approval.  

It is also vital that the directors and senior management of the designated FHC carry out their functions in a responsible and prudent manner. The FHC Bill provides for the application of corporate governance regulations on the FHC.

Regulation and Supervision of FHC Groups

Besides regulatory requirements on the designated FHC itself, the FHC Bill sets out requirements at the FHC group level. To achieve alignment in the regulatory approach towards financial groups, whether they are held under a bank, an insurance company or a designated FHC, regulatory requirements under the BA and IA will be mirrored in the FHC Bill, where appropriate. The FHC’s bank and insurance subsidiaries in Singapore will continue to be regulated under the BA and IA, respectively. 

The FHC Bill empowers MAS to prescribe rules to support the safety and soundness of the FHC group. Several of these rules are also present in the BA and IA and will be extended to designated FHCs. The FHC Bill also provides for MAS to conduct on-site inspections and investigations of the FHC and its subsidiaries. 

Administrative Provisions

Further, to support MAS’ administration of the FHC regulatory and supervisory framework, the FHC Bill contains administrative provisions, including powers to:

• make regulations, and issue directions and notices to designated FHCs;
• require the submission of annual audited accounts of the FHC and FHC group; and
• impose penalties on the FHC and individuals for the contravention of FHC regulations.

CONCLUSION

Mdm Speaker, let me conclude. Singapore’s financial system has held up well amid the turbulence of the global financial crisis of the past few years. It is important that MAS continues to have the appropriate and necessary regulatory tools to discharge its responsibilities as the financial landscape evolves. The introduction of the FHC Bill represents the continuous effort by MAS to ensure its regulations stay relevant to developments and challenges in the financial system.

Swiss Regulator Opens Consultation on Fully Revised Circular "Market Conduct Rules"

The Swiss Financial Market Supervisory Authority FINMA can now take action against all persons who use insider information or engage in market manipulation. Following the revision of the Stock Exchange Act and the Stock Exchange Ordinance, FINMA is fully revising Circular 08/38 on "Market conduct rules". Together with the section on general market supervision, the full revision also includes the part on specific organisational provisions for FINMA-supervised institutions. The consultation runs until 13 May 2013.

The revision of the Stock Exchange Act and the Stock Exchange Ordinance with respect to market offences and market abuse provides, for the first time at supervisory law level, specific statutory provisions that prohibits all natural persons and legal entities from engaging in insider trading and market manipulation. This means that Switzerland is moving closer to international standards. Prior to this, FINMA and its predecessor, the Swiss Federal Banking Commission (SFBC), could only enforce market conduct rules against supervised market participants. FINMA is implementing these new provisions as part of its full revision of Circular 08/38.

Clear definition of prohibition standards

The first part (Sections III-V) of the Circular details the general rules on preventing insider information and market manipulation. These rules apply to all natural persons and legal entities active on the financial market. The list provided includes abusive practices such as scalping, spoofing, wash trades, banging the close, etc. and is not conclusive. Moreover, a conceptual change has been made to the Circular: the rules on market conduct have been unbundled from those on the duty of loyalty as prescribed in Article 11 SESTA. The Circular on ‘Market conduct rules’ will thus focus on market supervision in the traditional sense.

Market abuse on the primary market, with foreign securities and in other markets

In order to assess the proper business conduct of an institution under prudential supervision, the Circular prescribes that not only securities dealing on Swiss stock exchanges is relevant; it now states more precisely what has been in practice for many years, i.e. that securities dealing in the primary market, on a foreign stock exchange and business activities such as the commodities and foreign exchange markets are also of importance when assessing proper business conduct (Section VI).

Revised organisational requirements

Section VII of the Circular that focuses on organisational requirements has also been revised. Here in particular recent experience and, where possible, international standards are taken into consideration; the target group has also been extended. In the revised Circular, organisational requirements are no longer directed exclusively at securities dealers, but also at all institutions under prudential supervision. The requirements specified however, are not the same for every supervised institution: depending on its business activities, size and structure, they are applied on an individual basis. The organisational measures necessary must be defined according to a risk assessment that is conducted regularly.

Legislative framework of the Circular

The revised Stock Exchange Act and Stock Exchange Ordinance are scheduled to come into force on 1 May 2013. The new rules in the Stock Exchange Act provide standards in criminal and supervisory law that capture market abuse on a broader basis and take account of international regulations. In particular, the insider criminal law provision has been newly regulated, the offence for price manipulation defined and universally valid elements for the prudential definition of improper market conduct provided. The Stock Exchange Ordinance sets out behaviour that is allowed in terms of "safe harbours".

Consultation Paper by Swiss Regulator on Circular "Distribution of collective investment schemes"

The Swiss Financial Market Supervisory Authority "FINMA" is fully revising FINMA Circular 2008/8 on "Public advertising – collective investment schemes" and is opening a consultation to this purpose. The new Circular will now be entitled "Distribution of collective investment schemes" and will take account of the revised Collective Investment Schemes Act (CISA) and the Collective Investment Schemes Ordinance (CISO) that came into force on 1 March 2013. The consultation will run until 3 June 2013.

In its current circular (FINMA-Circ. 2008/8), FINMA defines the term "public advertising" and sets out what cases qualify as public advertising when offering or distributing collective investment schemes in or from Switzerland.

In the revised Collective Investment Schemes Act (CISA) and the Collective Investment Schemes Ordinance (CISO) that came into force on 1 March 2013, the term "public advertising" has been removed and replaced by the term "distribution". Therefore, since one of the key criteria, i.e. the term "public" is no longer relevant following the revision of the CISA and CISO, it is necessary to fully revise the current circular. The new Circular will replace FINMA Circular 2008/8.

The new Circular will implement the changes made to the revised CISA and CISO with respect to the distribution of collective investment schemes. In particular, it will define the term "distribution" and explain what activities qualify as distribution, as well as setting out the legal consequences entailed.

Key Points

1. In the partly revised Collective Investment Schemes Act (CISA) and the Collective Investment Schemes Ordinance (CISO) that came into force on 1 March 2013, the term ‘public advertising’ has been replaced by the broader term ‘distribution’ (Art. 3 CISA; Art. 3 CISO).
2. Following the revision of the CISA and the CISO, there is no longer a distinction made between ‘public’ and ‘non-public’ advertising. It is therefore necessary to fully revise FINMA Circular 2008/8 ‘Public advertising – collective investment schemes’.
3. Within the meaning of Article 3 CISA, any form of offering and advertising collective investment schemes is, in principle, considered as distribution of collective investment schemes where (i) it is not directed exclusively at investors under Article 10 para 3 lets a and b CISA and (ii) it is not in- cluded in the exemption clause under Article 3 para. 2 CISA.
4. The term ‘distribution’ within the meaning of Article 3 para. 1 CISA in particular excludes offering and advertising collective investment schemes that are aimed solely at qualified investors as prescribed in Article 10 para. 3 let. a (supervised financial intermediaries) and let. b (supervised insurance companies). Other exceptions include execution-only transactions and asset management advisory services.
5. The purpose of the revised circular is to define the term ‘distribution of collective investment schemes’ and explain what activities qualify as distribution. Moreover, the legal consequences entailed where a certain activity qualifies as distribution are set out.

Collective Investment Schemes Bankruptcy Ordinance comes into force in Switzerland

The Swiss Financial Market Supervisory Authority FINMA will put the FINMA Collective Investment Schemes Bankruptcy Ordinance into effect on 1 March 2013 (In German Language). The new ordinance details the provisions of the Collective Investment Schemes Act under bankruptcy law and sets out the procedure for bankruptcy proceedings. It renders the courses of action adopted by FINMA and the procedural steps it takes during the bankruptcy process transparent.

The consultation on the FINMA Collective Investment Schemes Bankruptcy Ordinance (CISBO-FINMA) stirred relatively little interest, and the consultation draft was favourably received. By adjusting the draft document appropriately, account has been taken of the few suggestions made for improvement. Hardly any material changes were made, however, to the draft document. The proposed adjustments concerned the revision of the Collective Investment Schemes Act, which, in the meantime, had been completed and treated in the definitive version of the CISBO-FINMA.

Background

Since 1 September 2011, FINMA has been responsible for opening and conducting bankruptcy proceedings over licence holders of collective investment schemes. By putting the current ordinance into effect, FINMA has invoked its powers to issue specific implementing provisions in this area. The new ordinance is a fully coherent and comprehensive regulatory framework: it includes general provisions under bankruptcy law as well as specific regulations for the various categories of licence holders. This in turn renders the regulatory process transparent and enhances creditor and investor protection.