The Monetary Authority of Singapore (MAS) has initiated a consultation to gather feedback on proposed measures aimed at improving the ability of investors to seek civil compensation following losses due to market misconduct. This initiative arises from the acknowledgment that retail investors encounter significant challenges when attempting to initiate civil actions, particularly with regards to self-organization and funding for legal assistance.
The MAS is keen to enhance the current investor recourse framework while simultaneously ensuring that the system is not overwhelmed by frivolous lawsuits that could place undue stress on the marketplace. The proposals put forward aim to strike a balance between empowering investors and protecting against potential abuses of the legal system.
The key proposals outlined are as follows:
1. **Facilitating Self-Organization**:
Investors affected by market misconduct may benefit from collective action, which can strengthen their legal claims through pooled resources and shared evidence. However, organizing such actions presents challenges, particularly in appointing a representative to lead the case. To address this, MAS suggests implementing a system that allows for the designation of an independent representative who can coordinate legal actions on behalf of all affected investors. This representative must adhere to specific criteria to prevent conflicts of interest and safeguard against opportunistic behavior.
2. **Providing Access to Funding**:
One of the significant barriers for investors pursuing legal action is the cost associated with it. Various expenses, including specialized legal fees, expert witness costs, and detailed financial assessments, can be considerable. To alleviate these financial burdens, MAS proposes the creation of a grant scheme to assist in funding legitimate investor actions. This funding will also aid the designated representative in managing and organizing claims. Moreover, to avoid encouraging unmeritorious litigation, the MAS emphasizes the importance of implementing controls, such as grant parameters and co-payment features, to ensure the scheme is utilized appropriately and serves genuine claims.
3. **Reducing Legal Barriers to Civil Action**:
While some legal provisions already exist to support investors in pursuing compensation claims—such as those allowing claims to be made referencing criminal convictions or civil penalty orders—there are opportunities for further refinement. To reduce potential friction, MAS proposes the following amendments:
– Simplifying the process for filing piggyback claims so that investors can easily understand and utilize it without needing extensive legal support.
– Expanding the scope of these claims to include various resolutions, such as civil penalty settlements or default judgments, which would allow investors to initiate claims based on a broader range of settled enforcement cases.
– Adjusting the requirements around proving reliance in cases of misstatements, recognizing the difficulties that investors may face, especially in the presence of concurrent market rumors or business developments.
– Lifting existing statutory caps that limit the amount of compensation that can be awarded, enabling courts to determine appropriate compensation based on the specifics of each individual case rather than being constrained by a fixed limit.
Feedback on these proposals is being solicited from interested parties, with a deadline set for December 31, 2025. The consultation effort indicates a proactive step towards refining the investor compensation framework within the financial landscape, emphasizing the importance of safeguarding investor rights while maintaining the integrity of the market.