10th Singapore Conferences on International Business Law - The Regulation of Wealth Management
OPENING ADDRESS BY CHIEF JUSTICE CHAN SEK KEONG
22 August 2007
Supreme Court Auditorium
Prof Tan Cheng Han, Ladies and Gentlemen,
I am delighted to be given this opportunity to address such a distinguished audience. More so as it is on the regulation of wealth management, a subject in which I had a professional interest, first as a practising lawyer, then as a judge and finally as Attorney General until April 2006 when I resumed my judicial post.
2 Given the huge amount of private capital being generated in Asia, wealth management is a growing area of enormous significance to Singapore as a financial centre. A Straits Times article published on 4 June 2007 reported that Singapore is fast emerging as a global booking centre of choice for private banks, with wealthy people from around the world having booked about $200 to $260 billion of assets here. Further, Singapore’s fund management industry grew from about S$280 billion in 2000 to S$891 billion by end of 2006. From 2005 to 2006 alone, the industry grew by 24%. About 85% of these funds were sourced offshore with over 50% of these funds coming from Asia-Pacific countries.
3 To succeed as a wealth management centre, we must get our infrastructure right, and by this I mean not only the sound and successful development of financial institutions for this purpose but also the law and its enforcement of legal rights. In terms of market share of the world’s private wealth, Singapore has a very long way to go to catch up with the more established wealth management centres like Switzerland. But, in terms of legal infrastructure, I think ours is not inferior to any other centre in the world.
4 This Conference brings together speakers and participants whose ideas and views on the different aspects of this subject will, it is hoped, assist the development of Singapore in this regard. Your presence here today is a reflection of the Government’s stated aim of attracting the best, brightest and wealthiest to Singapore, even if only for a couple of days. While your stay here may be transient, your participation will benefit greatly our regulators, private bankers, lawyers, accountants, professional trustees and others who are attending this Conference.
5 It is hoped that this 10th SCIBL Conference will be as successful as many of those in the past 25 years which have, in some ways, tracked the ascendancy of Singapore as a financial centre. Thus, the inaugural SCIBL Conference was on trade financing; the fifth was on international investments; and the ninth on the regulation of capital markets. Since the rise of China and India as economic powers of the future and the resurgence of the price of oil, questions have been raised on how to manage the enormous amount of surplus funds thereby generated. It is therefore apt and timely that this Conference has been organised around this topic. And more so, given the turmoil in the financial markets in the last two weeks when the performance of hedge funds has taken a beating.
6 Having looked at the titles and abstracts of the papers to be presented this time around, I have to confess that I am unable to say anything useful or even meaningful about them except on the fundamental principles underpinning the trust as a vehicle for wealth management. In this regard I have a judicial as well as an academic interest in the subject. My academic interest goes back to my law school days in Singapore when I studied equity and trusts and land law at a general and at an advanced level, under Professor Lee Sheridan, the founder and first Dean of the NUS Law School. He was a master of both subjects, and his book “Comparative Law of Trust in the Commonwealth and the Irish Republic” published in 1976 remains a magnum opus. Similarly, his doctoral thesis on “Fraud in Equity” was a seminal work on a subject that continues to give problems to judges today.
7 Appropriately, my first High Court case in 1962 when I appeared as counsel concerned a resulting trust. Later in the 1980s, I had a large banking and corporate practice, which included corporate conveyancing. Today, these broad areas of practice have now converged into the single, highly-specialised practice of securitisation of commercial and industrial properties. From not having a single real estate investment trust (REIT) up to 2002, we now have listed REITs with a market capitalisation of about S$25 billion as of the middle of this year. Quite a number of them involve overseas real estate assets. The Monetary Authority of Singapore has also identified infrastructural trusts as part of the next wave of asset securitisation in Asia. It believes, quite justifiably, that Singapore is well-positioned to play a leading role in this development.
8 Later on, in my first incarnation as a Judge of the Supreme Court, I had the pleasure of hearing and adjudicating many cases on trust and succession law, including constructive and purpose trusts . There were many other issues involving equity and trust law enmeshed in commercial cases that came before me. English trust law was received in and became Singapore law in 1826 “as far as circumstances will admit”. In so far as equity and trusts were concerned, there were no local circumstances which could deny the full reception of such principles since they were based on conscience and justice. Nevertheless, it is possible to argue that because the general reception of the principles of equity is subject to local circumstances, the classes of trusts, in particular in relation to the purpose trust (which provides the raison d’etre of many international trusts) are not closed under Singapore law if they advance our economic interests.
9 A case that may have some relevance to the trust as a vehicle for wealth management and which I heard as Judge was a matrimonial dispute concerning maintenance. The couple had lived in the UK where the husband sold his business for a considerable sum of money. The couple then migrated to Australia where the husband found the tax regime intolerable. So he put his capital into a Cayman Island discretionary trust to avoid having to pay either income tax or estate duty should he die. They then came to Singapore where the marriage fell apart, resulting in a claim by the wife for maintenance and custody of the two children of the marriage. The husband appeared in person and offered a ridiculously small sum for maintenance on the ground that he had no money as he no longer had a proprietary interest in the capital in the trust fund which was no longer under his control. When I asked him who owned the fund, he replied that it was the bank which had legal title to the funds. I replied that I would only accept his argument if the bank concerned was prepared to testify that it had beneficial ownership of the fund. End of argument.
10 In the last five years, Singapore enacted a slew of laws to update and reform our trust legislation to facilitate the growth of wealth management in Singapore. In terms of trust law, the changes are really quite modest as we did not find it necessary to introduce the type of trust legislation that is favoured by many tax havens. As an international financial centre, Singapore does not need legislation that permits absolute freedom and power to the settler to do as he likes. There is always a danger that trust structures that cannot be controlled can be used for purposes damaging to the host state. In Singapore, we take pride in the integrity and transparency of our financial and securities legislation. Nevertheless, Singapore courts will enforce all legitimate foreign trusts. Thus, British Virgin Islands trusts and Cayman Island trusts are alive and thriving in Singapore and are still being used by global financial institutions based in Singapore. The international dimension is also now so omnipresent that the conflict of laws is always a background concern. I am therefore pleased to see that Professor Tan Yock Lin will address this difficult area of law in his paper.
11 In the last few years, Singapore has also enacted legislation to allow for new business structures on the principle that more is better than less. They included one-man companies, the limited liability company for professional firms, and the business trust which has become a popular vehicle for shipping and infrastructural trusts. We have also enacted a Limited Liability Partnerships Act, after an extensive public consultation. The latter, to be discussed later this morning, is eagerly awaited by the many private equity and hedge funds that have now set up in Singapore and will be the focus of the papers tomorrow morning. Promoters and originators should be allowed to take advantage of their unique features, which include differential tax consequences, capital maintenance rules, institutional governance structures, creditor rights of recourse against either investors or the aggregated fund, and the conferment, or not, of legal personality.
12 In the last few years, the Singapore courts have had their fair share of resolving disputes between investors and investment managers over bad investments. We can see many more coming if and when the stock market turns sour. Yet, we should not be surprised by these developments in a globalised world and the age of global financial institutions and law firms. No one knows what new problems may emerge that require the attention of equity as conscience and justice. At this moment, we cannot say that its principles are so ossified that they cannot be put to new uses and to unbundle unconscionable commercial transactions. I think we can still declare that “(e)quity is not past the age of child-bearing”, although we have to guard against the child becoming too unruly. Those of us of a certain vintage would like to see all of this as simply new wine in old bottles. A younger generation with greater energy and aspirations, however, believes, quite justifiably, that it is a brave new world. Both the evolutionary and revolutionary views, however, have their place. Certainly, it has helped us understand devices in trust law such as a letter of wishes, which our Court of Appeal recently encountered. It is something that is not new to practice, but may not have been fully explored in decided cases, particularly in the context of a Muslim estate, as was the case there. The same can be said for devices such as the trust protector, which use started in offshore jurisdictions but has now come onshore. The papers tomorrow will help us navigate what, to practitioners in Singapore, may seem to be uncharted waters. Given the flexibility of the trust device, however, it may be that much more can be done in using Singapore law to meet client needs for wealth management and protection than has hitherto been the case here.
13 But, basically, the seriously wealthy are only interested in three certainties under the law, just like a valid private trust: (1) anonymity; (2) control, absolute or otherwise, of the trust funds and freedom from claims, such as those by tax authorities and creditors; and (3) a safe haven, secure from expropriation. I would think that any reputable and trusted financial centre which is prepared to give them these safeguards will succeed as a wealth management centre as well.
14 The financial and legal landscape in Singapore has indeed been recently transformed. The future is bright, and fortune may well favour the brave. But we must not forget the lessons learnt from the successes and mistakes, both of our own making and of others. Balancing the development and regulation of the wealth management sector will therefore be crucial to its long-term sustainability and success in Singapore and the region. What we should avoid is a sub-prime legal and financial infrastructure that, whilst intended to promote this business of the future, also allows money-laundering and crime and terrorism financing to flow through as well. While there are, at present, clear skies ahead, we cannot take the success of the trust business, private banking, hedge fund and private equity sectors here for granted. Heightened awareness of these possibilities and constant re-appraisal of the efficiency of the infrastructure is necessary to ensure that we grow as a clean wealth management centre.
15 I wish all of you an enjoyable Conference, and a wonderful stay in Singapore. Thank you.