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Singapore – Coming Into Effect Of New Attributed Liability Concept – Part XII (Market Conduct) Of The Securities And Futures Act.

 26 October, 2012

 

Legal News & Analysis – Asia Pacific – Singapore – Regulatory & Compliance

 

SUMMARY
 
The Securities and Futures (Amendment) Act 2009 was passed by Parliament on 19 January 2009, introducing amendments to the Securities and Futures Act (“SFA”) in several phases. The latest set of amendments came into force on 1 October 2012 pursuant to the Securities and Futures (Amendment) Act (Commencement) Notification 2012 and included amendments to Part XII (Market Conduct) of the SFA. A new Division 5 (Attributed Liability) was inserted to introduce the concept of attributed liability in relation to market misconduct.
 
BACKGROUND
 
Under general principles of corporate and criminal law, a corporation has independent status and is not liable for a contravention of law or offence committed by its employees, except to the extent that the employee can be said to be the agent or to represent the directing mind of the corporation. The insider trading provisions of the SFA attribute knowledge of an officer to its corporation. Under section 226, a corporation is attributed with knowledge of information that was acquired by its officer in the course of his duties as an officer. A corporation is also presumed to know any matter or thing which its officer knows or ought to know by virtue of his position in the corporation. The new amendments to the SFA supplement existing attribution rules by making a corporation liable in the event of any contravention of the provisions in Part XII of the SFA by its employee, provided that the contravention was committed for the benefit of the corporation: 
  
(a) where the contravention was committed by its employee with the consent or connivance of the corporation; or 
(b) where the corporation failed to prevent or detect a contravention and the contravention was attributable to its negligence.  
 
CONSENT OR CONNIVANCE OF A CORPORATION
 
Consent or connivance of a corporation may be established: 
 
(a) where the board of directors or a high managerial agent (A “high managerial agent” means an employee, agent or officer of a corporation with duties of such 
responsibility that his conduct may fairly be assumed to represent the corporation’s policy) of the corporation intentionally, knowingly or recklessly engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the contravention; or 
(b) where a corporate culture existed within the corporation that directed or encouraged the contravention. 
 
NEGLIGENCE OF A CORPORATION
 
In determining whether a contravention is attributable to the negligence of a corporation, the court will take into account:  
 
(a) whether the corporation has established adequate policies and procedures for the purposes of preventing and detecting market misconduct; and 
(b) whether the corporation has consistently enforced compliance with such policies and procedures.
 
PRACTICAL RECOMMENDATIONS
 
With these changes in place, if not already implemented, a corporation, partnership or limited liability partnership ought to put in place robust anti-market misconduct policies and procedures and ensure consistent compliance of such policies and procedures.
  
The Monetary Authority of Singapore (“MAS”) has yet to issue any guidelines on this. The UK Financial Services Authority (“FSA”) issued a Market Watch newsletter on 29 October 2007 which focused on some specific areas of control that hedge fund managers may put in place in managing market abuse risks. Taking into account 
suggestions by the FSA, some of the practical measures an entity may consider implementing include:  
 
(a) building in computerised trade surveillance systems to detect unusual trading activities; 
(b) maintaining a regularly updated list of restricted securities which employees are not allowed to trade in, and having in place procedures requiring employees to declare and notify the entity of their trading activity, to prevent the trading of securities when inside information is received; 
(c) regular monitoring of internal controls and procedures by internal committees and/or independent third party auditors; (d) robust procedures for the operation and enforcement of “Chinese Walls” (where appropriate) to ensure that employees are only allowed access to information not in conflict with other information such employees possess, and to ensure supervision of inter-departmental or interteam communication by the entity’s compliance committee; 
(e) establishing adequate policies and guidelines in relation to the treatment of confidential information; 
(f) tapping telephone lines of appropriate individuals and reviewing  telephone recordings upon detection of unusual trading activities; 
(g) regular staff training and workshops on market misconduct tailored to the type of business undertaken by the entity; and 
(h) conducting regular reviews of the entity’s internal control systems. 
 
While the above measures provide some useful pointers that may be adopted by an entity in Singapore, they should not be taken as an exhaustive or prescriptive checklist of things that an entity should do in order to avoid contravention of the SFA. 
 
In determining the policies and procedures that an entity should adopt, it should consider the nature, scale and complexity of its business, the diversity of its operations, the volume and size of its transactions and the degree of risk of market misconduct. 
 
REFERENCES
 
1. Securities and Futures (Amendment) Act 2009
2. Securities and Futures (Amendment) Act (Commencement Notification) 2012
3. Financial Services Authority Market Watch Newsletter, Issue No. 24   

 

 

For further information, please contact:

 

Gary Pryke, Managing Director, Drew & Napier 

gary.pryke@drewnapier.com 

 

Eric Chan, Director, Drew & Napier 

eric.chan@drewnapier.com

 

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