The Monetary Authority of Singapore (MAS) has published a consultation paper today looking for feedback on proposals to strengthen the ability of investors to seek civil compensation for losses suffered by market misconduct.
MAS has learned that retail investors face frictions when starting civil action, such as difficulty organizing themselves and finding sufficient funds for legal advice. With these in mind, MAS is seeking feedback on proposals to strengthen the current investor appeal regime. At the same time, while it is important to allow investors to seek civil redress, MAS also heard comments that there is also a need to protect against frivolous legal action that would unduly burden the market. The MAS proposals seek to establish relevant safeguards to strike the appropriate balance.
The three main proposals to strengthen the investor appeal regime are as follows:
a) Facilitation of self-organization
While investors affected by market misconduct can take collective action to strengthen their case through pooled resources and shared evidence, they may face difficulties organizing themselves and finding someone willing to lead the action. By law, a third party can assist plaintiffs, but cannot sue on behalf of plaintiffs.
To address this challenge, MAS proposes to introduce a mechanism that would allow an independent party to be appointed as a designated representative to coordinate and take legal action on behalf of affected investors. To avoid potential profiteering and vexatious litigation, the appointed representative must meet specific criteria, such as no conflict of interest and no direct financial interest in the outcome of the case.
b) Providing access to finance
MAS understands that one of the most significant barriers for investors when taking legal action is the upfront costs. Market misconduct cases can be complex, requiring specialized legal expertise, expert witnesses and detailed financial analysis, all of which have significant costs. For many investors, these upfront costs can be daunting and deter them from pursuing legitimate claims.
Recognizing this, MAS proposes the establishment of a grant scheme to co-finance worthy investment initiatives. The grant scheme will also seek to cover the appointed agent’s costs of organizing and coordinating investors. However, MAS is aware that providing funding without adequate controls risks encouraging opportunistic appeals that will waste judicial resources and impose unnecessary costs on market participants. Accordingly, MAS proposes appropriate grant parameters, co-payment features and governance framework to ensure that the system supports genuine claims while preventing abuse.
c) Reduction of legal barriers to civil action
While there are existing legal provisions that make it easier for investors to pursue compensation claims, such as allowing investors to bring compensation claims that refer to a criminal conviction or civil penalty order made against a wrongdoer (called a “piggy bank claim”), MAS proposes to improve these provisions to address potential frictions. These include:
- Simplifying and clarifying the procedural steps by which investors can submit a refund claim, to address comments that investors may not be aware of or require legal assistance to use this provision;
- Expanding the scope of the piggyback requirement to allow investors to bring claims for damages based not only on a criminal conviction or civil penalty, but also on a default judgment or consent order against the infringer or a civil penalty settlement entered into by the infringer with MAS. This will allow investors to use a wider range of resolved enforcement cases where there is an admission of liability to initiate piggyback claims.
- Making legislative amendments to facilitate evidence of investor confidence in cases of inaccuracies or omissions in relation to the trading of products on the capital markets. This recognizes that trust may be difficult to ascertain, for example, if there are contemporaneous market rumors or business developments relating to the listed company. and
- Abolition of existing statutory caps limiting compensation amounts so that the Court can set compensation amounts based on the particular circumstances of each case, consistent with its standard approach to assessing damages in civil claims.
MAS will accept views and suggestions from interested parties on the proposals until 31 December 2025.