Speech by Mr. Louis Ng Kok Kwang, MP for Nee Soon GRC at the Second Reading of the Payment and Settlement Systems (Finality and Netting) (Amendment) Bill [Bill No. 44/2017]
Sir, I stand in support of this Bill. Given the rapid development in Fintech, we need to ensure our laws and regulations keep up. I have comments and queries on one specific aspect of the Bill and more broadly, to request for an illustration.
Timing of insolvency protection
I refer to the Consultation Paper MAS shared dated 3 August 2017 which listed the objectives of the amendments in this Bill. The objectives are to bring Singapore’s laws on this subject matter up to date with international development to enhance Singapore’s position as a major financial centre, and to incorporate global best practices from leading jurisdictions like the UK and the European Union.
As such, to try and understand the Bill, I have looked into the EU Settlement Finality Directive 98/26/EC, which has been since amended by two other directives in 2009 and 2010, and two regulations in 2012 and 2014.
The main rule in Article 3(1) is that transfer orders and netting shall be legally enforceable, even in the event of insolvency proceedings against a participant, and shall be binding on third parties provided that transfer orders were entered into the system before the moment of opening of insolvency proceedings.
In this Bill, I note that clause 9 which amends Section 8 of the Payment and Settlement Systems (Finality and Netting) Act (“FNA”) does not prescribe the same degree of certainty as to whether a transfer order or any other transactions in Section 8(1) list will be legally enforceable and binding on third parties as long as a transfer order or any other list of matters are entered before an opening of an insolvency proceeding. Can the Minister clarify why this is so?
Prescription of this timing is important to my mind, as cross-border payment settlement and netting seem especially vulnerable to insolvency laws in different jurisdictions.
I understand that this insolvency carve-out is dealt with in Clause 9 of the Bill, which amends Section 8 of the FNA. Section 8 of the FNA states that transfer orders and the transactions in Section 8(1) list “shall not be regarded as to any extent invalid on the ground of inconsistency with the law for distribution of the assets of person on bankruptcy or winding up, or on the appointment of a receiver, receiver and manager or equivalent officer”.
I appreciate that this has the implied effect of ensuring transactions made through the Designated Systems (“DS”) are final, irrevocable and cannot be reversed or challenged by insolvency laws or a liquidator.
MAS’s Consultation Paper also states in paragraph 2.2 that the proposed amendments is consistent with laws of the European Union.
However, neither does the Bill expressly address the timing issue stated in Article 3(1) of the EU directive on whether such transactions have to be entered into before the commencement of insolvency event, nor address what happens if transactions are entered into the system after the commencement of an insolvency event, regardless of whether a DS has actual or constructive knowledge of the commencement of insolvency event.
In fact, clause 12 of the Bill which amends section 12 of the FNA makes it clear that the DS’s operator may effect netting of all obligations owed to or by the participant up to and including one business day after.
Can Minister clarify if it is the intention of the Ministry to not draw a distinction and provide a blanket prioritisation and finality of transfer orders and transactions in section 8(1) of the FNA?
If so, can Minister further clarify if this may be opened to abuse in any way such as by a company disposing its assets even after commencement of winding up, contravening Section 259 of the Companies Act by effecting transfer orders into DS?
Practical implication of Bill amendments
Additionally, can the Minister provide specific examples for members and the public to understand the practical implications of these amendments, specifically the extension of insolvency protection for transfer orders, netting and settlement in a DS amendment? For example, what transactions would not have previously fall under the FNA, which will now fall under the revised FNA once this Bill passes?
I appreciate that this is a highly technical bill, but it’s precisely such bills that require illustration and explanations.
Alternatively, will MAS be publishing guidelines to help the affected parties, such as the DS operators, settlement institutions, financial institutions and public understand the revised FNA?
Sir, notwithstanding the above queries, I stand in support of this Bill.