i Sources of law
The primary source of securities law in Singapore is the Securities and Futures Act (SFA). It is supported by a network of other statutes, regulations and guiding instruments. Case law precedents provide authoritative guidance for the interpretation and application of these legislative rules.
A summary of the key sources is given below.
Statutes (primary legislation)
- Securities and Futures Act (Cap 289, Rev Ed 2006).
- Companies Act (Cap 50, Rev Ed 2006).
- Financial Advisers Act (Cap 110, Rev Ed 2007) (FAA).
- Banking Act (Cap 19, Rev Ed 2008).
- Insurance Act (Cap 142, Rev Ed 2002).
- Business Trusts Act (Cap 31A, Rev Ed 2005).
Regulations (subsidiary legislation)
- Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2018.
- Securities and Futures (Organised Markets) Regulations 2018.
- Securities and Futures (Licensing and Conduct of Business) Regulations (Rev Ed 2004).
- Securities and Futures (Trade Repositories) Regulations 2013.
- Financial Advisers Regulations (Rev Ed 2004).
- Companies Regulations (Rev Ed 1990).
The Monetary Authority of Singapore (MAS) issues directions, codes and guidelines, and practice statements and notes, as follows:
- Written directions issued by the MAS: these directions have the force of law, a breach of which may constitute a criminal offence.
- MAS Codes & Guidelines (e.g., the Singapore Code on Take-overs and Mergers, and the Code on Collective Investment Schemes): these are non-statutory instruments that provide guiding standards that market participants should adhere to.
- No-action letters: while useful as guidance, these letters do not have the force of law as they do not bind the MAS or the Public Prosecutor from instituting proceedings subsequently.
- Policy statements and practice notes: when a market participant presents certain facts to the MAS for its opinion, the MAS may issue a no-action letter to state that it does not intend to institute proceedings against the market participant on the basis of those facts. The MAS may subsequently issue a policy statement or practice note to inform all market participants on the practice it has adopted.
The Singapore Exchange (SGX) has issued the following rules:
- The SGX-ST Mainboard Listing Manual.
- The SGX-ST Catalist Listing Manual.
- The SGX-ST Rules.
- The SGX-DC Clearing Rules.
- The Futures Trading Rules.
ii Regulatory authorities
The MAS is the primary regulator of the banking, insurance and securities industries. It also performs the functions of the central bank of Singapore.
The SGX is the front-line regulator for all listed companies and trading activities on the exchange.
In relation to mergers and acquisitions, the Securities Industry Council is responsible for administering and enforcing the Singapore Code of Take-overs and Mergers.
The Commercial Affairs Department of the Singapore Police Force is primarily responsible for the investigation and prevention of financial and other white-collar crimes.
The Financial and Technology Crime Division of the Attorney-General's Chambers is primarily responsible for the prosecution of financial and other white-collar crimes.
iii Common securities claims
Securities claims in Singapore would generally take the form of common law claims or statutory claims under the SFA.
Common law claims can be based on various grounds, including (but not limited to) contract, misrepresentation and breach of fiduciary duties.
The statutory claims are primarily found in Part XII of the SFA. They include:
- Insider trading.
- False trading.
- Market manipulation.
- Market rigging.
- Dissemination of false or misleading statements and information.
- Employment of manipulative and deceptive devices.
- Failure to provide continuous disclosure of material information.
- Fraudulently inducing persons to deal in capital markets products.
- Dissemination of information about illegal transactions.
A breach of the above can attract both civil and criminal consequences. It should also be noted that many of these common securities claims overlap. For instance, the prosecution for insider trading is typically accompanied by a prosecution for the failure to provide continuous disclosure of material information.
The SFA provides for a concept of 'attributed liability' – if an officer or a corporation is found to have committed one of the relevant statutory offences with the consent or connivance of the corporation and for the corporation's benefit, the corporation will be guilty of that offence as if it had committed that offence itself.
The SFA also provides that if an offence under the SFA is found to have been committed by a corporation with the consent or connivance of, or to be attributable to any neglect on the part of an officer, both the officer and the corporation would be guilty of that offence.
Additionally, the general principles of criminal accessory liability (i.e., conspiracy or abetment, or both) apply – broadly speaking, it would have to be shown that the person had a sufficient degree of knowledge that the offence would be committed.
II PRIVATE ENFORCEMENT
i Forms of action
Nature of proceedings
Private actions can be commenced by writ or originating summons. The latter is generally limited to actions that only concern questions of law and do not involve substantial disputes of fact.
Availability of class action suits
Singapore law does not recognise class action lawsuits in the sense that is traditionally understood in the United States. However, it does allow a single person to commence a proceeding on behalf of various persons who have the same interest. This process is referred to as 'representative proceedings'. Separately, multiple suits that pertain to the same transaction or involve common questions of fact or law can also be consolidated into a single suit.
Shareholder derivative action
A shareholder derivative action can be commenced either as a statutory derivative action under the Companies Act or as a common law derivative action. It is generally easier to commence a statutory derivative action as the threshold requirements are less onerous.
The general rules relating to the jurisdiction of the Singapore courts apply to securities claims. Where the quantum of a claim exceeds S$250,000, it will be heard in the first instance in the High Court. Where it does not, it can be heard in the state courts.
If the case is transnational in nature, it may be heard in the Singapore International Commercial Court (SICC) if certain requirements are met.
There is a specialist list of judges who will generally hear securities and financial matters.
Civil procedure rules
The civil procedure rules relating to service, pleadings, discovery, pretrial procedures, conduct of trials, and appeals are the same as in any other private law action. These can be found in the Supreme Court of Judicature Act, the State Courts Act, the Rules of Court, and the Practice Directions of the respective courts.
Major legislative amendments to Singapore's civil procedure regime are expected in the second half of 2019. It remains to be seen how the legislative amendments will impact securities litigation in Singapore.
Financial Industry Disputes Resolution Centre
Apart from securities litigation in the courts, it is common for financial services disputes to be resolved by alternative dispute resolution (ADR) in the Financial Industry Disputes Resolution Centre (FIDReC).
FIDReC is an independent institution set up to provide ADR services for financial disputes in Singapore. Access to FIDReC is available to retail investors with a claim against financial institutions, limited to S$100,000 per claim (unless agreed otherwise).
When a dispute is referred to FIDReC, it will direct parties to attempt mediation, and if mediation fails, to have the case heard by way of adjudication. The decision of the adjudicator is binding on the financial institution, but not on the retail investor.
Entering into settlement
The general principles relating to the settlement of a securities claim is no different from those relating to settlement of other types of claims. Settlement agreements generally take the form of a contract or a deed.
The parties are generally free to agree on the terms of the settlement and the courts would not intervene save in exceptional circumstances. There is no need for the court to endorse the settlement agreement, though it is possible for parties to record the terms of the settlement agreement by entering it as a consent order.
In the event of a settlement, there is no requirement for attorneys' fees to be fixed by the court – parties are free to agree on their costs.
However, if a settlement offer is made by one party and the other party does not accept it, there may be costs implications for the latter party depending on the outcome of the trial. Under Singapore's civil procedure rules, where a plaintiff's offer to settle is rejected and the plaintiff subsequently obtains a court judgment equal to or more favourable than the terms of the offer, the plaintiff is entitled to its legal costs on an indemnity basis from the date of the offer to the date of the judgment.
Conversely, where a defendant's offer to settle is rejected and the plaintiff subsequently obtains a judgment that is equal to or worse than the terms of the offer, the court may award the defendant costs on an indemnity basis.
Breach of settlement agreement
Where one party acts in breach of the settlement agreement, the possibility of the other party bringing a claim based on the facts existing prior to settlement (as opposed to a claim based on the settlement agreement alone) depends on the terms of the settlement agreement.
iv Damages and remedies
The primary remedy awarded in securities claims, as in other claims, is damages. The calculation of damages depends on the exact nature of the claim, though the general principle behind an award of damages is to compensate the plaintiff for any losses suffered.
If the claim is contractual in nature, the standard measure of damages will be the amount needed to place the plaintiff in a position as if the contract had been performed. If the claim is tortious in nature, the standard measure of damages will be the amount needed to place the plaintiff in a position as if the tort had not been committed.
Where there has been a contravention of the SFA, investors who have suffered losses as a result of the contravention are entitled to make claims against the contravening person. The amount of compensation that a claimant is generally entitled to is its loss suffered by reason of the difference between the price at which the securities were dealt in contemporaneously and the price at which the securities would likely to have been so dealt in at the time of the contemporaneous dealing if there had been no contravention (or where insider trading is concerned, the inside information had been generally available). However, the maximum recoverable amount is the amount of profit gained or the amount of loss avoided by the contravening person. The court will also pro-rate this amount if there are multiple claimants.
Non-monetary remedies, such as orders for specific performance and injunctions, may be awarded where damages are inadequate to compensate the plaintiff for its loss. The court will consider all the circumstances to decide whether to award such remedies, including whether the plaintiff itself is guilty of any blameworthy conduct.
III PUBLIC ENFORCEMENT
i Forms of action
Powers of the SGX
The SGX has the power to impose various sanctions, such as public reprimands, fines, restriction of access to market facilities, suspension and delisting.
Powers of the MAS
A range of enforcement actions is available to the MAS, including issuing warnings and reprimands, offering composition, issuing prohibition orders, directing the removal of directors and officers, and revoking or suspending the regulatory status of the financial institution.
Where appropriate, enforcement proceedings may also be commenced against the defendant. This can be done in one of two ways. The first is for the MAS to refer the matter to the Attorney-General Chambers (AGC), which can then decide to commence criminal proceedings.
Alternatively, the MAS may pursue enforcement proceedings under the civil penalty regime. Under this regime, the MAS may, with the consent of the AGC, commence civil proceedings against the defendant to seek a civil penalty.
Where the MAS has successfully pursued enforcement proceedings under the civil penalty regime, the court will not allow criminal proceedings to be brought against the same contravening person. The general trend has been for the MAS to pursue enforcement proceedings under the civil penalty regime. This has resulted in greater efficiency in enforcement as there is greater incentive for a defendant to reach a settlement given the absence of any criminal sanctions and the possibility of settling the matter without admission of liability.
The MAS will first investigate the matter to decide whether further action should be taken. The powers of the MAS have been set out above.
Where the matter is referred to the AGC, as the public prosecutor, it has the power to decide whether or not to commence criminal proceedings. Criminal proceedings involving securities-related offences are similar to criminal proceedings involving other types of criminal offences.
The accused would first be charged in court and then be asked whether he or she pleads guilty. A guilty plea must be made by the accused personally, voluntarily and without qualification. The court must also be satisfied that the accused understands the nature and consequences of his or her plea and the punishment prescribed for the offence, especially where he or she is unrepresented.
If the accused pleads guilty, the matter would be referred for sentencing. If the accused pleads not guilty, the matter will proceed to trial.
Prior to the trial, the prosecution has a duty to disclose to the accused (1) any unused material that may reasonably be regarded as credible and relevant to the guilt or innocence of the accused; or (2) any unused material that provides a real chance of pursuing a line of inquiry that leads to (1).
During the trial, the prosecution will first present its case, which will include the examination of its witnesses. After the prosecution examines each of its witnesses, the defence would have the opportunity to cross-examine him or her. After the prosecution closes its case, the defence will present its case in similar fashion.
The court will only convict the accused if it is satisfied, having heard all the evidence, that all the elements of the offence are made out beyond a reasonable doubt. Otherwise, the accused will be acquitted.
Proceedings under the civil penalty regime
If the MAS decides to pursue civil proceedings under the civil penalty regime instead, the procedure would generally follow that of all other civil proceedings heard before the High Court.
Proceedings are commenced by the MAS making a claim against the contravening person, who will then have to enter an appearance in court and file a defence if he or she intends to dispute the claim. Thereafter, discovery will take place (during which all relevant documents must be disclosed) and affidavits of evidence-in-chief would be filed. The matter would then be fixed for trial.
In contrast to criminal proceedings where a higher burden of proof applies (i.e., beyond a reasonable doubt), the burden of proof in proceedings under the civil penalty regime would be that of the civil standard (i.e., balance of probabilities).
As with all criminal proceedings, the prosecution also has the discretion to proceed with a lesser charge or withdraw the charge entirely. The accused may also decide to plead guilty to the charge at any stage of the criminal proceedings, though the sentence imposed by the court would generally be higher where the accused pleads guilty at a later stage.
Singapore has recently introduced a deferred prosecution agreement (DPA) scheme. A DPA is a voluntary alternative in which the prosecution agrees not to prosecute a corporation in exchange for the corporation agreeing to fulfil certain conditions and requirements within a fixed duration. Such conditions could include payment of a financial penalty, implementation of a compliance programme and cooperation in investigations. This is intended to assist the prosecution in taking further action against culpable individuals (in this regard it should be noted that the DPA scheme does not apply to the individual officers) while averting costly investigations and litigation. The DPA framework is intended to enable authorities to investigate large-scale, complex corporate crimes, and help bring culpable individuals to justice.
The DPA framework only applies to scheduled offences, including certain offences under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, the Prevention of Corruption Act and the SFA.
All DPAs will need to be approved by the High Court. Approval will only be granted if the DPA is in the interests of justice and its terms are fair, reasonable and proportionate. To ensure transparency, DPAs must be published after they are approved by the court.
Where a DPA is entered into and approved by the court, the corporation is deemed to have been granted a discharge not amounting to an acquittal. After the expiry of the DPA, the High Court may grant a discharge amounting to an acquittal. If, however, the corporation breaches the terms of the DPA during its term, the prosecution can make an application to terminate the DPA and prosecute.
Proceedings under the civil penalty regime
The MAS has the power to enter into a settlement agreement with the contravening person to pay, with or without admission of liability, a civil penalty. The rules governing such a settlement agreement are the same as in a private action commenced by investors (see above). There is no requirement for the settlement agreement to be judicially endorsed by the court. Neither is there a need for attorneys' fees to be fixed by the court.
iv Sentencing and liability
Generally, a person who is convicted of market misconduct offences may be sentenced to a fine not exceeding S$250,000, imprisonment for a term not exceeding seven years, or both.
Civil penalty regime
Under the civil penalty regime, the court may order payment of a sum not exceeding three times the amount of profit that the person gained as a result of the contravention or three times the amount of loss that the person avoided as a result of the contravention, whichever is greater and subject to a maximum cap of S$2 million. However, where the person is a corporation, the payment ordered must in any event not be less than S$100,000. In any other case, the minimum payment that must be ordered is S$50,000.
In assessing the amount of profit gained or the loss avoided by the contravening person, the court may consider the difference between the price paid or received by the contravening person and the trading price of the securities had the contravention not been committed (except for insider trading where the court would take into account the price within a reasonable period after public dissemination of the information).
Consequential and other orders
Where the contravening person is convicted of an offence or ordered to pay a civil penalty, the court may also fix a date on or before which all claimants have to file and prove their claims for compensation in respect of that contravention.
The court may also make an order against any other person who has received the whole or any part of the benefit of that contravention for disgorgement of that benefit, being benefit derived from trades carried out for the third party by the contravening person.
Where it appears that a securities-related offence has or is about to be committed, the court has the power to make a range of orders, including restraining and mandatory orders and orders declaring that a contract relating to a capital markets product or financial benchmark is void or voidable.
IV CROSS-BORDER ISSUES
The SFA may potentially apply to foreign parties (including foreign issuers) as it has extraterritorial scope.
First, where a person does an act partly in and partly outside Singapore, and that act constitutes an offence under the SFA, that person would be guilty of the offence as if the acts had been carried out wholly in Singapore.
Second, even where a person commits the offence outside Singapore, that person can be prosecuted and convicted of that offence in Singapore if the act has a substantial and reasonably foreseeable effect in Singapore.
The extraterritorial scope of the SFA as described above also applies to civil proceedings (including proceedings under the civil penalty regime) commenced in relation to insider trading and other forms of market misconduct.
In civil proceedings, where the defendant is a foreign party with no presence in Singapore, there may be difficulties relating to the service of the originating process and the subsequent enforcement of any judgment. In regards to service, leave of the Singapore court would have to be obtained prior to effecting service of the originating process. As to the enforcement of the Singapore judgment in the foreign jurisdiction, the ease of enforcement would depend on the laws and processes of the place of enforcement.
One issue that normally arises in cross-border civil disputes is the jurisdiction in which the dispute should be heard. In this regard, the inquiry starts with whether there is an applicable jurisdiction clause.
Where the parties had agreed to an exclusive jurisdiction clause, the Singapore court would generally enforce that clause. Similarly, where the parties have agreed to a non-exclusive jurisdiction clause (in favour of Singapore), the Singapore courts would generally enforce the clause unless there is strong cause for not doing so. This is a very high threshold to meet.
If there is no applicable jurisdiction clause, then the Singapore courts would determine which forum (Singapore or the foreign jurisdiction) is the natural forum to hear the dispute, and the inquiry involves (but is not limited to) a consideration of which jurisdiction has the most real and substantial connection to the dispute. This is largely a question of fact and involves the consideration of multiple factors.
V YEAR IN REVIEW
i Legislative amendments
The Singapore Securities and Futures Act was recently amended to provide for additional regulatory scrutiny including the protection of safeguards for protecting retail investors as well as the enhancement of regulatory sanctions for market misconduct.
ii Recent judgments
Three cases relating to securities litigation that were recently decided by the Singapore courts are set out below.
The first case (B2C2 Ltd v. Quoine Pte Ltd  SGHC (I) 03) relates to the first cryptocurrency trial in Singapore. The defendant operates a currency exchange platform that enables third parties (including electronic market makers such as the plaintiff) to trade virtual currencies for other virtual currencies or for fiat currencies. The dispute arose out of trades that the plaintiff had entered into to sell ethereum for bitcoin. The defendant reversed the trades the following day after it discovered a glitch in its programme that resulted in the plaintiff's trades being executed at a much more favourable rate to the plaintiff than the current market rate.
Following the defendant's reversal of the trades, the plaintiff sued the defendant for breach of contract and breach of trust. The matter was heard in the SICC, which allowed the plaintiff's claims. The Court held that the defendant's reversal of the trades constituted a breach of contract as the parties' agreement was for trades to be 'irreversible'. The Court also held that the defendant was in breach of trust, and in reaching this conclusion found that cryptocurrencies met all the requirements of a property right; and there was an intention to create a trust because the cryptocurrency assets were held separately from the defendant's own trading assets.
The second case (Macquarie Bank Ltd v. Graceland Industry Pte Ltd  4 SLR 87) involved a dispute between a bank and its customer in relation to a commodity swap agreement. This case was heard in the SICC.
The bank's claim arose from its customer's wrongful repudiation of the commodity swap agreement. In its defence, the customer alleged that it had believed that the swap would be effected by the bank as its agent with another third party. Hence, the customer denied the bank's claim on the basis of mistake and that the bank was in breach of its fiduciary duties.
The Court found in favour of the bank. Based on the contractual documentation, the transaction was being entered into between the bank and customer as counterparties. The Court also rejected the customer's claim for breach of fiduciary duties as the bank was not a fiduciary in the first place.
This case serves as a useful reminder that a fiduciary relationship generally arises only if it falls within one of the established categories of relationships or by contract.
The third case (AL Shams Global Ltd v. BNP Paribas  SGHC 143) involved a customer's claim against its bank for refusing to accept an incoming payment into its account.
In rejecting the customer's claim, the High Court found that the contract between the parties conferred on the bank the discretion to decide whether to accept any incoming payment. In this regard, the bank was free to exercise its discretion provided that it did so in good faith and not in an arbitrary, capricious or perverse manner. There was no evidence to suggest that the bank exercised its discretion in an arbitrary, capricious or perverse manner, or in bad faith.
This case demonstrates that where a party is conferred an absolute discretion under the terms of the contract, the courts would have regard to the terms and require a high threshold before finding that the discretion has been exercised improperly.
MAS enforcement actions
On 20 March 2019, the MAS published its enforcement report for the 18-month period ending December 2018. The report outlines the MAS' enforcement actions, priorities, and statistics in a bid to provide greater accountability to the general public.
The report explains that from 1 July 2017 to 31 December 2018, the MAS has issued:
- S$16.8 million in penalties to 42 financial institutions;
- 37 reprimands to five individuals and 27 financial institutions;
- 223 warnings to 32 individuals, 162 financial institutions, eight digital token exchanges, and one initial coin offering issuer;
- 31 letters of advice to 29 individuals and two companies;
- 19 prohibition orders banning unfit representatives from re-entering the financial industry; and
- 444 supervisory reminders to 52 individuals and 317 financial institutions.
The average time taken for a regulatory action was six months, and 33 months for a criminal prosecution.
The report also sets out the MAS' enforcement priorities for the 2019–2020:
- ensuring timely and adequate corporate disclosures;
- overseeing the business conduct of financial advisers and their representatives;
- tightening of internal controls of brokerage houses to stop market abuse;
- anti-money laundering and countering of terrorist financing; and
- insider trading.
Claims against financial service providers
There have been no significant changes in the claims brought by or against financial service providers in the past year, although more matters are now resolved by way of ADR methods. For example, for the financial year ending 30 June 2018, FIDReC received 1,251 complaints, higher than in the previous financial year in which 893 complaints were received.
VI OUTLOOK AND CONCLUSIONS
i Penny stock crash
The 2013 penny stock crash is the biggest case of securities fraud in Singapore. The incident involved three entities – Blumont Group, LionGold and Asiasons Capital. These companies initially saw huge run-ups in their share prices. However, in October 2013, the companies' shares crashed in a frenzied 40 minutes of trading and plunged further when trade resumed after a brief suspension. More than S$8 billion in shareholder value was lost in less than two days of trading.
It later transpired that three individuals had allegedly been involved in a scheme to manipulate the share prices of the companies. By controlling over 180 trading accounts and making thousands of manipulative trades, they created the illusion of liquidity and demand for the shares.
All three individuals have been charged with false trading and market rigging. One of the three individuals, Goh Hin Calm, has pleaded guilty and has been sentenced to three years' imprisonment. The other two individuals have claimed trial and proceedings are currently ongoing.
ii Payment services
Singapore has been taking steps to build a technologically robust smart financial centre that permits innovation and growth. For example, Parliament has recently passed a new Payment Services Act. The legislation is expected to come into force by the end of 2019 and seeks to provide a forward-looking and flexible framework for the regulation of payment systems and payment service providers in Singapore. It also seeks to provide a dual-track regulatory framework, with one intended for major institutions and the other designed for smaller payment firms (with the threshold being fixed at the average daily float of S$5 million). This is intended to allow smaller payment firms the opportunity to innovate without being subject to all regulations.
1 Vincent Leow is a partner and Nicholas Kam is an associate at Allen & Gledhill LLP.