MAS to beef up civil recourse, legal action for investors amid shift to disclosure-based regime

Retail investors who suffer losses in the stock market due to market misconduct could soon find it easier to seek civil recourse.

The Monetary Authority of Singapore (MAS) will consult on proposals later this year to strengthen investor protection through the enhancement of avenues to seek civil recourse.

MAS on Monday (Jul 21) said it has identified three areas of focus: enabling the pursuit of legal action, facilitating self-organisation, and providing access to funding.

To reduce the burden on investors when pursuing civil recourse action, MAS will consider enhancements to existing legal provisions that enable investors to ride on a court action or civil penalty to seek compensation.

It will also consult on proposals to allow for representatives to organise and carry out legal action on behalf of investors, such as not-for-profit assistance by the Securities Investors Association Singapore, or Sias.

To reduce the risk of potential profiteering behaviour and vexatious litigation, MAS said it will consult on the criteria for such representatives.

“Sias since inception had preferred to resolve shareholder issues ‘in the boardroom and not the courtroom’ to avoid damage to shareholder value,” said Sias founder, president and CEO David Gerald.

“Going forward, we will still try our best to engage company boards to resolve issues in the boardroom and only initiate court proceedings as a last resort,” he said.

“We are pleased that MAS has come forward to fund legal proceedings should it happen, and Sias will have the necessary manpower internally to cope with situations like Hyflux should it happen again,” he added.

While putting in place appropriate safeguards, MAS said there is a need to address concerns of frivolous legal actions that would unduly burden the market.

Lastly, it will seek views on the setting up of a grant scheme to defray the costs of organising investors and taking legal action for cases involving market misconduct. This is aimed at reducing cost barriers that deter investors from seeking compensation through civil action.

“Currently, there have been feedback and observations that retail investors seem to face friction in commencing civil action – such as difficulty in self-organising, and finding sufficient funds for legal advice,” the financial regulatory authority said in a statement.

“Facilitating investors to seek civil recourse is therefore important to bolstering investor confidence, maintaining market integrity and upholding the reputation of Singapore’s capital markets,” it added.

Stefanie Yuen Thio, joint managing partner at TSMP Law Corporation, sees the MAS proposals as “good developments” overall.

She noted that the law firm has for some time been calling for changes – including legal statutory amendments – to help resolve “frictions” faced by retail investors.

These include scant information available to shareholders, which makes proving any case of mismanagement or shareholder oppression an uphill task; difficulties in access to rally other shareholders; and limited legal avenues to pursue a class action lawsuit.

“MAS’ suggested changes will address a lot of these issues,” she said.

“Helping to defray the costs and allowing representatives to carry out litigation on behalf of a class of investors are good developments,” she added. “In tandem with this, the law needs to change to give the investors more access to information that would add substance to the litigation case.”

Disclosure-based shift

The MAS announcement on Monday comes amid Singapore’s proposed shift towards a more disclosure-based regime.

The MAS equities market review group in February signalled a move towards a more “pro-enterprise regulatory stance”.

Key changes recommended in its initial set of recommendations included proposals to consolidate listing suitability and prospectus disclosure reviews under Singapore Exchange Regulation; a more targeted approach to post-listing queries, alerts, and trading suspensions; and a removal of the watch list.

MAS on Jul 1 also proposed revisions to the product highlights sheet – a document which complements the main offer document and outlines the key features and risks for investors for certain investment products.

Along with this, it proposed to streamline the complex products framework – making it easier for retail investors to invest in products that are deemed complex without seeking the now-mandatory financial advice, even where they may not have the relevant qualifications, experience or knowledge in investing.

But MAS stressed that safeguards would still be in place for those who need the protection, such as those aged 62 years and above, and those with lower academic qualifications.

A MAS spokesperson said that the announcement earlier this month was part of its ongoing review efforts, but “also in line with the equities market review group’s broad objective to improve the vibrancy of our equities market through streamlining regulations and empowering investors in their investment journey”.

MAS said the review group continues to review other initiatives to enhance Singapore’s equities market.

These include measures to uplift companies’ shareholder engagement capabilities, strengthen the value proposition and attractiveness of the Catalist board, and enhance market-making mechanisms to promote deeper liquidity and price discovery.

To complement the work of the review group, MAS said its corporate governance advisory committee – an industry-led body set up in 2019 – has begun a review of the Code of Corporate Governance.

“The role of directors in the shift to a more disclosure-based regime will also become increasingly important. They play a key role in ensuring that companies meet the regulatory requirements while protecting the best interests of the company. Equipping directors with the right skills, knowledge and networks will thus be critical,” the Singapore Institute of Directors (SID) said in a statement.

But it urged authorities to put in place proper safeguards to protect against “the rise of an overly litigious environment”.

“In the US, for example, more than 200 securities class action filings are filed annually against companies and their directors,” SID said. “Striking the right balance between protecting investor rights and avoiding a climate of excessive legal action will be key to the success of these reforms.”

Corporate finance lawyer Robson Lee believes there must be “guard rails” to prevent any abuse of the system that may lead to “a floodgate of frivolous legal claims and class actions”.

“This new policy should not be open-ended to the extent that disgruntled shareholders misuse and weaponise the scheme to steal a march in any legal dispute with the board or management,” said Lee, a partner at Kennedys Law and director of Legal Solutions.

“There should be a reliable and independent body or institution appointed by MAS to conduct an initial assessment of the merits of any alleged misconduct or breach,” he added.

“It can be envisaged that clear legal advice must first be obtained from experienced lawyers on whether there are sufficient grounds to institute any civil claim on the alleged breach or misconduct in question.”

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

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