Keynote Address By Mr Lim Hng Kiang, Minister For Health And Second Minister For Finance At The IMAS 3rd Annual Conference On Thursday,6 July 2000, At 9.00 Am At The Island Ballroom, Shangrila Hotel06 Jul 2000
Mr Daniel Chan, Chairman, IMAS
Ladies and Gentlemen
1. I am happy to join you this morning at the 3rd annual conference of the Investment Management Association of Singapore (IMAS).
2. The MAS undertook a strategic review of Singapore's financial sector in 1998, and identified asset management as one of the key areas for development. At IMAS' inaugural conference in 1998, measures aimed at developing the asset management industry were first introduced. Since then, many new initiatives have been launched. Let me bring you through some of these initiatives.
3. In a bid to build up the local asset management industry, the requirements for Boutique Fund Managers (BFMs) to qualify as Investment Advisers (IAs) were streamlined in April 1999. Concurrently, the Approved Boutique Fund Manager (ABFM) tax incentive scheme was also introduced.
4. In 1999, MAS released regulatory guidelines for the offer of specialised fund products such as property funds, money market funds, capital guaranteed funds and futures & options funds, to retail investors in Singapore. These guidelines have been formulated with the objective of providing unit trust managers more latitude to offer a wider variety of products to our retail public. In September 1999, guidelines on cash rebates and soft dollar commissions for unit trust managers were issued with the objective of raising the standard of disclosure and professionalism in the unit trust industry. More recently in February this year, to facilitate and foster public offers of shares, debentures and unit trusts through the Internet, guidelines were drawn up to provide guidance on how such offers may be made within the parameters of the Companies Act.
5. MAS has also been concurrently developing the debt capital market with the aim of providing asset managers with a wider variety of debt instruments to invest in. On the equities front, MAS is phasing in open access to the SGX and liberalising commission structures. You are all familiar with these capital market related initiatives.
Outplacement of S$10 bn of MAS Funds
6. One of the key initiatives that was put in place over the past two years was the decision to outplace MAS' and GIC's funds with external fund managers. In November 1998, MAS announced plans to place out S$10bn worth of funds to external fund managers over 3 years. This was on top of the S$25bn that GIC had already set aside for outplacement with external fund managers. These funds are meant to serve as seed money to encourage existing as well as new players to grow their operations in Singapore.
7. There has been tremendous interest in MAS' outplacement exercise by many eligible candidates and I am pleased to announce that MAS has completed the selection for some of its mandates. To date, MAS has earmarked S$ 4.1 billion for outplacement with external fund managers.
8. I am confident that the selected fund managers will deepen their commitment to Singapore and, in the process, impart invaluable expertise to building up the asset management industry here. MAS will continue with the rigorous task of shortlisting other deserving managers for the remaining S$5.9 billion of funds, and expects the full S$10bn to be fully placed out by the first quarter of 2001.
9. GIC has also made substantial progress in placing out funds to external fund managers. As at the end of 1999, some S$10.8 bn outof the S$25 bn had already been placed out.
1999 Asset Management Survey Results
10. More than two years have passed since the regional crisis and the worst seems to be over. Not only are we seeing a recovery of asset price levels, we are also seeing renewed interest in the region. Many new fund managers have hastened their plans to establish operations in the region. Fund managers with existing presence in the region are also scaling up their operations to exploit the opportunities that have arisen from the region's rapid recovery. We are confident that the Singapore fund management industry is poised for further growth.
11. The results of MAS' latest Asset Management Survey for end-1999 support this belief. Let me now share the key findings of this survey, which most, if not all, of you here today had participated in.
12. As at end-1999, total assets under management in Singapore stood at S$246.2 bn, a 63% increase over the S$150.6 bn as at end 1998. This significant growth in assets can be attributed not only to upward asset valuations but also to the inflow of new funds. Apart from a healthy growth in the assets under management, there has also been a corresponding rise in the number of investment professionals in the industry. Investment professional headcount grew by close to 20% in 1999. While the majority of investment professionals in Singapore are equity specialists, we are also seeing a fair number of fund managers and analysts engaging in fixed income, private equity and real estate fund management.
13. Many asset managers who had previously adopted a cautious ''wait-and-see'' attitude, are now looking to establish operations in the region to seize opportunities presented by the region's recovery. The number of asset management companies in Singapore has increased over the past year. As at end-1999, there were a total of 191 asset management companies, up from 169 in 1998. The incumbents have also deepened their roots in Singapore. The number of bulge-bracket players managing discretionary assets of over S$5bn has increased to 11, compared with 3 a year before.
14. Retail investors are becoming more aware of the need to diversify their investments and now show a better appreciation towards professionally managed investments. The unit trust industry saw significant growth over the past year. In 1999, 60 new unit trusts were launched, bringing the total number of unit trusts registered in Singapore to 187. Unit trust assets under management increased by S$3.6bn to S$6.8bn over the course of 1999. Net subscriptions of unit trusts for 1999 amounted to some S$1.5b, representing a more than three-fold growth over the previous year.
Proposed New Licensing Framework - A Modular Approach
15. On a broader front, MAS has been reviewing the licensing framework under the Securities Industry Act (SI Act) and Futures Trading Act (FT Act). MAS intends to amalgamate these two Acts under a single legislation. Over the years, the securities and futures markets have become more convergent. Distinctions between these two markets have blurred while market intermediaries increasingly transact across a range of securities and derivative instruments of the same underlying products. In addition, the selection of securities products across asset classes has also widened. In the light of these developments, the regulation and supervision of market intermediaries will bebetter facilitated if securities and futures laws were combined.
16. Currently, the SI Act provides for Dealer's and Investment Adviser's Licences to accommodate the full range of activities undertaken by market intermediaries. Typically, brokers and securities underwriters hold Dealer's licences, while fund managers hold Investment Adviser's Licences. Nowadays, business models of the market intermediaries have changed, and the value chain has been deconstructed and reconstructed in various combinations of activities. For example, traditional brokers may want to expand their activities to offer cash management accounts, corporate advice and other services, either through the same entity or a separate business outfit, or even a financial portal. To keep pace with these developments, MAS will introduce a modular licensing framework.
17. Under the proposed licensing framework, MAS will incorp orate existing regulated activities and various elements of securities activities into a single licensing regime, so that individual market intermediaries can easily fit into the new structure and be licensed by MAS. This means that they would only be required to hold a single licence in order to provide a range of financial services. They could apply to MAS if they intend to expand into new activities without the need to hold a separate licence. However, they would be required to meet the prudential requirements for these new activities. This will make it more convenient for market intermediaries to conduct business, and at the same time, maintain our high regulatory standards. In the absence of this modular licensing framework, market intermediaries will need to hold multiple licences to provide a wider range of services.
18. The proposed modular approach is expected to lower the barriers to entry and accommodate changes in the business models of market players to suit market needs. This would facilitate the growth of new products and greater innovation amongst market players.
19. Institutions which provide market-wide services such as exchanges, ECNs which provide order matching services, clearing houses which provide clearing and settlement facilities, and central depositories, will not be licensed per se, but will require the approval of MAS, in order to operate here.
Modifying the Existing Exemptions to Licensing
20. The current licensing scheme also allows for various exemptions. Some of these exemptions have given rise to ambiguities as the industry evolves. These exemptions are legacies of the past and some were spontaneous responses to specific circumstances faced then. Now that we are introducing a new licensing framework, these exemptions can be brought within the ambit of regulation.
21. Approved Fund Managers (AFMs) under the Tax Exemption Scheme for Fund Management are currently exempted from being licensed as Investment Advisers. These are reputable institutions of international standing whose business is conducted mainly with non-resident clients. The policy of linking the AFM tax incentive to the licensing exemption under the SI Act has served us well in the past. But territorial distinctions become less relevant with increasing electronic delivery of services. In line with the international trend towards cross-border trading conducted in cyberspace, AFMs, like all other fund managers, will need to be licensed. The new licensing framework will be able to accommodate these entitieswithout difficulty. Bringing the AFMs within the licensing regime will also assure maintenance of Singapore's high regulatory standards and simultaneously allow for greater cooperation with overseas securities regulators.
22. To minimise regulatory overlap and to ensure consistent regulations for intermediaries participating in the securities and futures markets, MAS is proposing to grant full exemption from licensing requirements in respect of securities and futures businesses to financial institutions which are already regulated by MAS. However, their securities and futures businesses will be subject to similar requirements as that imposed on licensed securities intermediaries. This will ensure a level playing field for all market participants in the industry.
23. MAS will be circulating a consultation paper giving a detailed outline of the proposed licensing framework to various industry bodies, including IMAS. We invite you to study our proposals and give us your feedback. We envisage that the output will be a licensing regime that will better accommodate your business models. Other industry bodies which are involved in the creation and broking of securities will also be consulted. In addition, we will place the consultation paper on the MAS website for access by any interested parties.
24. I started my speech today by bringing you through some of the measures that have been taken to develop the fund management industry. The proposed new licensing framework announced today is yet another effort to make the business environment even more conducive for industry players such as yourselves. How the industry eventually shapes up will be driven by your efforts. IMAS has a significant role to play in this regard.
25. From its beginnings as an idea mooted by Minister for Finance, Dr Richard Hu in 1995, IMAS has been critical in shaping Singapore's fund management industry. For example, IMAS has been active in enhancing the standards of professionalism for industry players. The Code of Ethics and Standards of Professional Conduct developed by IMAS in 1999 serves as the benchmark for excellence and professionalism for industry practitioners. IMAS was also actively involved in the formulation of the licensing examination for Investment Representatives (IRs) which came into effect in December last year.
26. IMAS should continue to draw on its collective expertise and knowledge to spearhead the development and growth of Singapore's fund management industry. I am confident that by working closely together, the MAS, with IMAS and the industry, will be ready to face the challenges which may lie ahead.