Singapore legislation guide
By Cara Chan and Sophie Lim
Allen & Gledhill LLP
Tel: +65 6890 7188 Fax: +65 6327 3800 Website: www.allenandgledhill.com
An area of law that has seen significant change in 2011 is safeguards for retail customers of listed and unlisted investment products. In a separate development, extensive changes to the Companies Act have been proposed including to shareholders’ rights and meetings. These include enfranchising indirect investors by allowing certain categories of members to appoint more than two proxies.
Safeguards for retail customers
On July 28 2011, the Monetary Authority of Singapore announced new requirements relating to the sale of certain investment products, referred to as ‘Specified Investment Products’ (SIPs), to retail investors. SIPs are likely to contain derivatives – for example, structured notes, exchange traded funds, exchange traded notes, investment linked insurance policies, warrants and options, futures and certificates.
From January 1 2012, intermediaries for the sale of these products must comply with two new processes:
• Customer Account Review (CAR) for investors who wish to trade listed SIPs: The requirement to conduct a CAR will be imposed on intermediaries who hold a capital markets services licence in certain regulated activities, as well as exempt financial institutions in respect of such regulated activities, and each of their respective representatives. Before an intermediary opens an account for a customer to trade in listed SIPs, it must conduct a CAR to assess if the customer has the relevant knowledge or experience in derivatives. Factors to be considered include the customer’s educational qualifications, investment experience and work experience. The account may be opened only with the approval of a member of the intermediary’s senior management who is not involved in that particular account opening process or connected to the relevant customer. Additional safeguards apply where the customer is assessed not to possess the relevant knowledge or experience.
• Customer Knowledge Assessment (CKA) for investors who wish to purchase unlisted SIPs: The requirement to conduct a CKA will be imposed on intermediaries who hold a capital markets services licence in certain regulated activities, as well as exempt financial institutions in respect of such activities, financial advisers and exempt financial advisers, and each of their respective representatives. An intermediary must conduct a CKA on a customer before selling or recommending an unlisted SIP to him. Factors to be considered include the customer’s educational qualifications, investment experience and work experience. An intermediary should still offer to provide advice regarding the unlisted SIP to a customer who has cleared the CKA. Additional safeguards apply if a customer does not clear the CKA.
Proposed enfranchising of indirect investors
On June 20 2011, the Ministry of Finance and the Accounting and Corporate Regulatory Authority jointly released a consultation paper inviting comments on the Report of the Steering Committee for Review of the Companies Act. In its report, the Committee recommended changes relating to shareholders’ rights and meetings. This included enfranchising indirect investors – such as institutional investors and fund managers holding shares through a nominee company or custodian bank – by allowing certain categories of members to appoint more than two proxies to attend and vote at the same meeting.
A member of a company is only entitled to appoint up to two proxies to attend and vote at the same general meeting, unless the Articles of association of the company provide otherwise. In other words, unless a company amends its Articles to remove the default statutory limit on the number of proxies that may be appointed by a member, investors who hold shares in the company via a nominee company or custodian bank are prevented from attending shareholders’ meetings due to the limit in the number of proxies.
The Committee has proposed amending the Companies Act to the effect that, subject to any contrary provision in a company’s Articles, the following categories of members are allowed to appoint more than two proxies to attend and vote at the same general meeting. This is provided that each proxy is appointed to exercise the rights attached to a different share or shares and the number of shares and class of shares are specified:
i) any bank licensed under the Banking Act or its wholly-owned subsidiaries, whose business includes the provision of nominee services and who holds shares in that capacity; and
ii) any capital markets services licence holder providing custodial services for securities under the Securities and Futures Act.
Concurrently, the following additional changes to the Companies Act have also been proposed, in support of the multiple proxies regime:
i) bringing forward the cut-off time for the lodgement of proxies from 48 to 72 hours prior to the shareholders’ meeting to provide more time for the company to process the increased number of proxies; and
ii) allowing the multiple proxies to each have the right to vote on a show of hands at the shareholders’ meeting.
The consultation closed on September 16 2011.