- Rationale Of The Act
The Securities and Futures Act (“SFA”) describes itself as “relating to the regulation of activities and institutions in the securities and futures industry, including leveraged foreign exchange trading, and of clearing facilities, and for matters connected therewith.”
Section 2 of the SFA contains a comprehensive definition of futures contracts and securities which fall under its purview. The definitions are largely uncontroversial, but specifically excluded as “securities” are futures contracts which are traded on a futures market, bills of exchange, promissory notes and certificates of deposit issued by banks of finance companies.
Shorn of this potentially complex jargon, one finds the conceptual basis behind the SFA in Parliament’s 2nd reading of the SFA Bill. The SFA is modelled largely after the Australian Corporations Act 2001, which makes Australian case law on the equivalent provisions highly persuasive. Then Deputy Prime Minister Lee Hsien Loong set out 2 primary reasons behind the legislature’s decision to implement the SFA as a “single rulebook” in consolidating, inter alia, the earlier Security Industries Act and the Futures Trading Act:
- Due to increasing technological advances in capital markets, cross-selling and financial innovations required the local regulators to create a flexible and transparent legal framework which adequately balanced prudential concerns with financial market development.
- Since the 1997 Asian financial crisis, the Monetary Authority of Singapore’s approach had changed from a merit-based regulation where the MAS had to decide what came to the market, to a more flexible and disclosure-based regime where companies are mandated under section 203 of the SFA to continuously disclose material information. This stemmed from the government’s need for investors to be able to make informed decisions.
- Corporate Crimes In The SFA
The modes of regulations propounded by the SFA are legion, but there are some key areas which focus on commitment of corporate crimes. These can be found mainly in Part XII and XIII of the SFA, which regulate Market Conduct and Offers of Investments respectively. Part XII contains the gist of the provisions which impose criminal liability upon a corporation or its directors and officers for certain prohibited fraudulent acts. The SFA’s objective here is to – in tandem with the continuous disclosure regime as its stalwart partner – ensure a fair and neutral investing ground by preventing any unscrupulous behaviour.
- Securities Fraud Offences
Section 219 can be regarded as the most important of the provisions in combating fraudulent criminal activity in the stock market. The SFA adopted a new information-connected approach for imputing insider-trading liability. It also reversed the PP v Ng Chee Keong approach which had introduced a requirement of intention to use the information – this ironically returned the regime to the repealed s 158 of the Companies Act. Parliament rejected the earlier approach which frequently allowed tippees of information to avoid prosecution as they were neither connected nor under any arrangement to receive the inside information. A key defence to this crime is the “Chinese Wall” exception. Criminal penalties for insider trading are found in s 221.
There are 4 other fraudulent securities crimes that are criminalised in the SFA – with s 204 prescribing criminal penalties. These are false trading or market rigging, market manipulation, affecting the price of securities by the dissemination of misleading information, and fraudulently inducing persons to deal in securities. However, case law on these provisions is scarce – indicating difficulty in detecting perpetrators of these crimes.
- Prospectus-Related Offences
The 2005 amendments to the SFA made all securities offers subject to the prospectus requirements unless the offer was excluded or exempt. The rationale here is similar to that of Part XII in allowing investors to make informed and accurate decisions in choosing whether to subscribe or purchase the securities. If there is any untrue statement or non-disclosure in a prospectus, the relevant person may be liable under section 253 (1) of the SFA. The SFA provides for 3 defences of non-consent, fair reliance, and reasonable belief to criminal liability under s 253.
- Attribution Of Liability For Market Misconduct
The latest amendments to the SFA in 2009 have also introduced a new concept of attributing criminal liability for market misconduct offences. The common law concept of corporate liability had portended the loophole that a company could reap the benefit of any market misconduct carried out by junior-level employees. The new section 236B in the amendment will make the company criminally liable where the offence has been committed with its consent or connivance.