TRUSTS AND THE RULE OF LAW IN SINGAPORE

Citation(2013) 25 SAcLJ 365
Date01 December 2013
Published date01 December 2013

1 Some of you may be wondering what I am doing here this morning, when I retired as Chief Justice of Singapore just over nine hours ago. So, an explanation is called for.

2 Two months ago, David Chong requested me to speak at this conference on “A Tale of Two Cities, on the role of Singapore and Hong Kong”, as wealth management centres in 21st Century Asia. With the current financial problems in the West, this would be the best time to examine this subject.

3 I informed David that I would be retiring on 5 November 2012 and would not be able to speak in my capacity as Chief Justice. David replied that it did not matter so long as I spoke. He would not take “No” for an answer. So here I am.

4 When I received the conference programme two weeks ago, I noticed that I was listed to speak on “Trusts and the Rule of Law in Singapore”, ie, trust as a legal institution. There is, of course, an important difference between “trust” in commercial and social life and “trust” as a legal institution, where we usually use the plural form “trusts”. If you trust someone, you have confidence that he will keep his word and will not cheat you. But, to trust someone, according to The Disrespectful Dictionary,1 is “to lay oneself open to deception”. We are never so vulnerable than when we trust someone. Nevertheless, it is trust that makes the world go round. Some would suggest that it makes the world go wrong, especially the world of finance recently when financial greed and excess almost destroyed the global financial system.

5 George Schultz gave a speech in 1989 in which he said that “Trust is the coin of the realm”.2 The realm, ie, the state, must abide by its promises not only to its own people but also to other states to which it has made commitments or promises. A nation that debases its coinage will lose the confidence of other nations, but especially of money

looking for a safe haven. Trust is a commodity that Singapore has plenty to show. Singapore can be trusted to keep its commitments and promises in its international as well as domestic affairs.

6 Global investment banks will not locate their wealth management business in Singapore unless they have trust in at least three things: (a) the Government and its policies; (b) the banking and financial laws and infrastructure, and (c) the legal system which is based on the rule of law. These are the prerequisites to support, grow and sustain a financial industry. Without these, Singapore would be an improbable location as a wealth management centre. The rich of the world demand safety and security for their wealth as the first priority, in addition to increasing their wealth. That Singapore has become a global financial centre over the last 30 years and a wealth management centre in the last ten years is a testament to, among other things, the Government's long-term economic planning and goal-directed policies. These policies, reinforced by an efficient regulatory and legal environment, have provided the foundations of Singapore's success as a financial centre and a wealth management centre.

7 Singapore's laws and financial regulators have created trust in our banking and financial system. Our regulations have allowed trust to be established generally with the three main stakeholders: the industry players, the international financial community, and the clients. There is regular interaction between the regulators and here is one example. When the Monetary Authority of Singapore (“MAS”) decided to review its regulatory oversight of the over-the-counter derivatives market in Singapore, it sought feedback from the industry and the general public and issued timely responses to such feedback. Contrast this with jurisdictions where there is no consultation before regulations are enacted,3 or where the tone of regulation is adversarial,4 or where the Government flip-flops on policies. Such countries do not generate trust amongst investors.

8 Singapore's regulators are responsive to international standards. This is best illustrated with an example. The Income Tax (Amendment) (Exchange of Information) Bill5 was read for the second time on 19 October 2009. It proposed amendments to the Income Tax Act6 to

allow Singapore to implement internationally agreed standards for the exchange of information for tax purposes upon request. Two points should be noted. First, Singapore always seeks to keep in line with relevant international standards. Secondly, and this is perhaps less obvious, Singapore responds quickly. The Minister for Finance made it clear that recognition as an internationally agreed standard was accorded in October 2008 when a UN Committee endorsed the standard. Following that, Singapore decided to endorse the standard a mere five months later. In doing so, the Minister said that Singapore would always adopt relevant international standards because it was a responsible and trusted international financial centre.

9 Similarly, our regulators have also responded quickly to implement the recommendations from the Financial Action Task Force on the prevention of money laundering or terrorist financing.7 The industry here also understands the importance of such policies in safeguarding the integrity of our financial system.

10 The trust required from the second group, the international financial community and regulators, is vital to the functioning of an international financial hub. As contemporary events show, once that trust is lost, even jurisdictions steeped in history as wealth management hubs will find themselves under a great deal of scrutiny from other countries. Our regulators' quick and near immediate actions would have assured the international community of Singapore's adherence to its international and bilateral obligations.

11 Our regulators have even acted prudentially by issuing reminders to the financial institutions. In September 2011, the MAS issued a set of guidelines to remind financial institutions that they have an important role to play in preserving the integrity of the financial system. The MAS took this step as a preventive measure to guard against any potential inflow of suspicious funds.8 This came after Singapore had concluded several bilateral agreements to resolve tax issues.9

12 On 9 October 2012, as I was in the midst of my preparation for this address, the MAS issued a consultation paper on the designation of tax crimes as money laundering predicate offences in Singapore. This

demonstrates Singapore's full commitment to safeguarding its financial system from being used to harbour proceeds from tax crimes.10

13 I now turn to the third group of stakeholders, the clients. The confidence that our financial system is clean is important to this group of stakeholders. Clients know that they are placing their assets in a jurisdiction where the abuse of the financial system is not tolerated and criminal conduct is investigated efficiently. They know that they are not only putting their money in a jurisdiction which operates its financial systems with transparency, but also balances it against the need for anonymity, confidentiality and privacy. The Banking Act11 provides adequate safeguards against the unauthorised disclosure of financial information concerning clients.

14 Clients expect reliability, trustworthiness, transparency, extensive product knowledge and high-quality investment advice from their relationship managers.12 These are demands which must be met by financial institutions in Singapore for Singapore to continue to grow as a premier wealth management hub.

15 Now, I refer to an issue that will undermine trust in the system: the lack or perceived lack of trustworthy investment bankers. Trust in banks worldwide has spiralled downwards as a result of the 2008 financial crisis. They have lost the trust of the investing public. Many of them are being sued by customers, investigated and heavily fined by regulatory authorities, and prosecuted in court for offences involving dishonesty. The roll of dishonour includes some of the best known global banks.

16 Singapore was ranked by the Heritage Foundation as the second most free economy in the world in 2012 after Hong Kong, and this has been their relative positions for many years. In the category of Business Freedom, Singapore scored 97.2 while Hong Kong scored 98.2. I do not know the elements of this category, but both are common law jurisdictions, and freedom of contract is one of the basic principles of the law of contract. Freedom of contract is a boon for financial institutions. If you ask any financial institution what its credo is, ie, the values by which it conducts its business, it should not be very far from two of the business principles of Goldman Sachs, viz, (a) “Our clients' interests always come first”; and (b) “Integrity and honesty are at the heart of our business”. In other words, investors can trust them to do the right thing by them.

17 Yet, it is a common feature of investment bank mandates that they contain at least three kinds of clauses to protect themselves from their clients: (a) the conclusive evidence clause, (b) the exemption clause, and (c) the non-reliance clause. These clauses operate in different ways but with one objective — to protect the bank against court actions by its customers for losses suffered by them as a result of bad or poor investment advice from their investment managers. The only reason that the banks have not included indemnities by customers is only because an indemnity clause...

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