Mr S Iswaran at the 9th Investors' Choice Award

SPEECH BY MR S ISWARAN,SENIOR MINISTER OF STATE FOR TRADE AND INDUSTRY, AT THE 9TH INVESTORS' CHOICE AWARD, 9 OCTOBER 2008, 9.30 PM AT RAFFLES BALLROOM, RAFFLES CONVENTION CENTRE

Mr David Gerald, President & CEO, SIAS

Distinguished Guests,

Ladies and Gentleman,

A very good evening to all of you.

INTRODUCTION

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, …”These are the opening lines of Charles Dickens’ 19th century novel, A Tale of Two Cities.The story is set against the backdrop of the French Revolution, but the words still resonate, especially given the circumstances we find ourselves in today.

An unprecedented financial crisis originating in the United States is now rippling through the globe.As a small open economy, Singapore will not be insulated from the effects.It is a profound reminder of how inextricably interdependent our economies are.I think you will agree with me that there is no time more apt than the present to reflect on the wisdom of corporate governance and investor education, and the foolishness of hubris and irrational exuberance.

We are all aware of the “Black Monday” two weeks ago, which was Wall Street’s worst day since the 1987 stock market crash.The Standard & Poor’s 500-stock index plunged almost 9%, its third-biggest decline since World War II.Barely a month ago, Lehman Brothers submitted the largest bankruptcy filing in U.S. history.It is extraordinary when you consider that Lehman had over US$600 billion in assets and 25,000 employees.AIG, with assets amounting to over US$1 trillion and more than 100,000 employees worldwide, had to be rescued by a bridge loan extended by the US Federal Reserve.This, along with the nationalization package for Fannie Mae and Freddie Mac, and the US$700 billion dollar bail-out plan recently approved by US lawmakers, illustrates a remarkable scale of government intervention in the world of finance.

This crisis can be, and has been, attributed to many causes.But it illustrates vividly the importance of regulatory supervision, corporate responsibility and investor prudence as the foundation of a resilient financial system.What does this mean for Singapore’s financial sector and individual investors?

ROLE OF REGULATORY SUPERVISION

Even as we navigate our way through this storm, some lessons are already apparent.Firstly, the current crisis illustrates the need for regulatory capacity to keep pace with financial innovation in the markets.While innovative financial activity has the potential to create value and benefit society, it comes with an inherent set of risks.The current malaise and demise of established financial institutions are linked to CDOs and other exotic derivatives which were based on underlying mortgages.The adjective sub-prime was a relatively late addition to the financial lexicon.

Today, balance sheets in the greater financial market are deemed to still contain significant amounts of asset-based securities and derivatives that are difficult to value and share many of the characteristics of the subprime mortgage-based securities that plummeted in value when the real estate market declined.

It is a natural instinct for investors and firms to seek to innovate within the constraints of regulations.We should not be surprised by this.Indeed, innovation is as integral to financial markets as it is to product markets.The key is to ensure the systemic risks of such innovation are clearly calibrated, managed and, where necessary, regulated.Regulators must have the capacity to stay abreast, if not ahead, of changes in the financial marketplace and evolve regulatory structures to keep pace with such changes.Regulators must also act with judicious restraint so as not to needlessly shackle markets.In our bid to regulate responsibly, we must resist the urge to be overzealous and aim for a balance between the management or curtailment of risk, and the creativity and vibrancy of our financial markets.

Recognising this need, MAS has taken several steps to determine the resilience of our financial system. It has intensified its monitoring of financial markets and the supervision of financial institutions.MAS has also conducted stress tests of Singapore banks and the domestic operations of the large foreign banks here.The results reported by the banks reflect their resilience.

THE ROLE OF CORPORATE GOVERNANCE AND INVESTOR PRUDENCE

But regulation is not a panacea and cannot succeed on its own.It is crucial that corporations and individual investors alike work hand-in-hand with regulatory authorities to buttress the capacity of financial markets.

Instilling high standards of corporate governance is an important facet of such efforts.MAS, together with Accounting and Corporate Regulatory Authority (ACRA) and Singapore Exchange (SGX), has established an industry-led Audit Committee Guidance Committee (ACGC) that will assist audit committees to better understand and carry out their role and responsibilities. The efforts of these committees will be enhanced by the sharing of best practices among corporations and through the foresight of senior management in corporations to encourage, incentivise and reward ethical behaviour.

Investor awareness is yet another pillar of a robust financial system. In view of its importance, MAS’s MoneySENSE financial education programmes provide tips on personal investing and highlight common strategies like diversification, asset allocation and dollar cost averaging to help one manage investment risks.MoneySENSE programmes also provide cautionary messages on what consumers should consider before they invest.The principle of caveat emptor work best when the buyer is not just beware, but also aware.

The Securities Investors’ Association of Singapore (SIAS)’s partnership with MoneySENSE to bring free seminars on financial planning to the heartlanders is a crucial step towards promoting widespread understanding of good investment practices.These efforts complement various financial education initiatives organized by MoneySENSE and other financial industry associations.I commend SIAS for being proactive in its efforts to protect investors’ rights, and to educate investors.SIAS’s efforts will gain even greater importance in the years to come as Singapore’s financial markets become more vibrant.I encourage SIAS to continue pursuing efforts to educate investors on prudent investment strategies given the growing sophistication of financial markets and products.

CONCLUSION

It may be challenging to be sanguine amidst such economic turbulence and uncertainty.However, the “season of light” and the “spring of hope”, as Dickens put it, are perhaps epitomised by tonight’s winners of the 9th Investor’s Choice Awards organized by SIAS.Ultimately, companies with strong fundamentals and good corporate governance will prevail in the face of such adversity.

I would like to take this opportunity to congratulate all the winners of the Investors’ Choice Awards.I note that some of you have won these awards in previous years and applaud your commitment to upholding the highest standards of corporate governance. I am also delighted to see first-time winners amongst the award recipients and would like to encourage you to continue your quest to enhance corporate governance.I wish you all the very best.

Thank you.