Corporate Registers (Miscellaneous Amendments) Bill

Order for Second Reading read.

6.08 pm

The Second Minister for Finance (Ms Indranee Rajah): Mr Deputy Speaker, I beg to move, "That the Bill be now read a Second time."

The Corporate Registers (Miscellaneous Amendments) Bill covers four sets of amendments to the Companies Act and the Limited Liability Partnerships Act. Two sets of amendments introduce new requirements. The other two clarify existing requirements.

These amendments will strengthen Singapore's corporate governance regime and affirm our commitment to combating money laundering, terrorism financing and other threats to the integrity of the international financial system.

The amendments will also bring us into closer alignment with the international standards set by the Financial Action Task Force, or FATF, of which Singapore is a member. FATF is an inter-governmental organisation that sets international standards to prevent global money laundering and terrorism financing and the harm that is caused to financial ecosystems and society at large.

MOF and the Accounting and Corporate Regulatory Authority (ACRA) sought views from the public on the draft Bill in July last year and have taken in the feedback received where relevant and feasible. I thank the contributors for their inputs.

Let me start by setting out the two new requirements that will be introduced, via amendments to the Companies Act and the Limited Liability Partnerships Act.

Today, the Companies Act already requires companies to maintain a Register of members or shareholders.

In certain situations, a shareholder may hold shares on behalf of another person. In such a situation, the person holding the shares is known as the nominee shareholder, while the person for whom the shares are held is known as the nominator.

Our Acts today do not require the nominator to be identified, as he or she is not the shareholder on record. However, as the nominee shareholder typically acts on the instructions of the nominator, the lack of transparency on the identity of these persons who actually control the shares is an area of concern internationally.

The first set of amendments today aims to address these concerns and align our legislation with FATF recommendations, by requiring both local and foreign companies in Singapore to, first, keep a non-public register of nominee shareholders and their nominators; and second, to update their register within seven days of being informed by the nominee. This will ensure that nominators, who are effectively controllers of a company, are properly identified, in line with the international standards.

With this amendment, nominee shareholders will also be required to inform the company of their nominee status and their nominators in a timely manner.

These amendments are provided for in clause 2(i) of the Bill.

The second set of amendments introduces new requirements in relation to the identification of registrable controllers, for local and foreign companies and LLPs.

Today, companies and LLPs are already required to maintain a Register of Registrable Controllers. These are individuals or corporate entities that have a significant interest in or significant control over the company or LLP.

However, there have been situations where a company or LLP claims to have no registrable controllers with significant interest or control.

Under the new requirement, companies and LLPs which are unable to identify a registrable controller who has a significant interest in or significant control over the company or LLP will be required to identify all individuals with executive control over the company or LLP as registrable controllers. Individuals with executive control are the chief executive officers (CEOs) and directors or partners who exercise executive control over the daily or regular affairs of the company or LLP through a senior management position.

This will enhance the transparency of beneficial ownership and control of companies and LLPs in Singapore, by ensuring that a registrable controller is identified for all companies and LLPs, in line with international expectations.

Clauses 2(e) and 3(c) of the Bill provide for this amendment.

Aside from these two sets of amendments, this Bill also seeks to clarify the timelines for local and foreign companies to update their various registers.

The third set of amendments requires local companies to update their Register of Nominee Directors within seven days of receiving information from their nominee directors.

Local companies are already required to maintain a Register of Nominee Directors, reflecting their status as a nominee director and the particulars of their nominator. However, no timeframe is specified for local companies to update their register when there is a change in particulars of the nominee director or their nominator. Specifying a seven-day time limit for this provides clarity on the expected timeline and will ensure that the register is updated in a timely manner. Clause 2(f) of the Bill provides for this amendment.

Finally, the fourth set of amendments specifies a 30-day timeframe for foreign companies to update their Register of Members.

Foreign companies are already required to keep a Register of Members at their Singapore branch, but, currently, there is no timeframe specified as to when updates must be made when there is a change in their members' particulars. This amendment will, similarly, provide clarity to the foreign companies on the timeline expected for updating their register.

We have allowed a longer timeframe for foreign companies to give them sufficient time to contact their members who may be based overseas and to update their register. Clause 2(a) of the Bill provides for this amendment.

The proposed amendments in this Bill on the new registers to be maintained and the clarification of the timelines within which the various registers must be updated will strengthen Singapore's regime on the transparency and beneficial ownership of companies and LLPs. Mr Deputy Speaker, I beg to move.

Question proposed.

Mr Deputy Speaker: Mr Louis Ng.

6.16 pm

Mr Louis Ng Kok Kwang (Nee Soon): Sir, this Bill gives effect to the Financial Action Task Force's recommendations on the prevention of money laundering and terrorist financing. Preventing the illicit movement of funds is key to Singapore's role as a respected international financial hub and I am glad we are taking steps to strengthen our protections. I have three points of clarification.

First, can the Minister clarify the reasons why directors with executive control and the CEO must be listed in the register if no registrable controller is identified? Why are these two groups specifically listed? Does this mean that no other person can have executive control and is not relevant to be disclosed in the register? Further, this requirement seems repetitive, given that the information about directors and CEOs are already filed with ACRA.

Second, can Minister provide more clarity on the definition of "nominee shareholders"? What would be necessary before someone is considered "accustomed"? The amendment states that the nominee must also receive dividends on behalf of the principal shareholder. Is it sufficient that there is an agreement for the nominee to receive dividends, or must there be an actual distribution into the hands of the nominee? If it is the latter, this creates a problem where it is impossible to clarify nominee status for companies that do not issue dividends.

Third and finally, can the Ministry share how it will support small businesses in complying with these new regulations? The new regulations apply not only to multinational corporations or financial institutions but also small local businesses. For small businesses, these rules can be complex and require proportionally larger costs to comply with. How will the Ministry support our small businesses to ensure these regulations do not unfairly burden them?

In summary, I seek clarification on three things: the need to list directors or CEOs in the register, the definition of nominee shareholders and the ways the Ministry will support small businesses in complying with the new regulations. Sir, notwithstanding my clarifications, I stand in support of the Bill.

Mr Deputy Speaker: Mr Leon Perera.

6.18 pm

Mr Leon Perera (Aljunied): Mr Speaker, Sir, the Corporate Registers (Miscellaneous Amendments) Bill seeks to amend certain laws relating to the prevention of money laundering and terrorist financing. The proposed amendments are a result of recommendations made by the inter-governmental body, known as the Financial Action Task Force (FATF). These amendments concern administrative requirements applicable to companies in Singapore.

Sir, the Bill is a step in the right direction for Singapore as it underlines our commitment to being a responsible global player in financial services, one that is committed to a transparent, rules-based, global order and, hence, able to derive economic benefits from that order. My speech will support the Bill but raise questions and suggestions.

Mr Deputy Speaker, Sir, Singapore is committed to the global effort to combat transnational crime as a member of FATF and a founder member of the Asia Pacific Group on Money Laundering. The Singapore Government's stated aims have been to detect, deter and prevent money laundering and terrorism financing and to protect the integrity of its financial system from illegal activities and elicit fund flows.

Singapore has continued, I note, to make progress to address the technical compliance deficiencies identified in the latest 2019 FATF Mutual Evaluation Report, or MER. As a result of this progress, Singapore has been re-rated on several Recommendations, that is, Nos 3, 23, 24 and 25. Take, for instance, the amendment of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, which came into effect in April 2019. The increase in fines through these Acts were considered sufficiently dissuasive in the said MER, which led Singapore to be re-rated as compliant with Recommendation 3, bringing Singapore closer to its goal of deterring money laundering and terrorist financing activities.

However, Singapore has not addressed all the identified deficiencies and several areas for improvement still exist. In order to strengthen Singapore's measures to fight money laundering and terrorism financing, the Corporate Registers (Amendment) Bill is necessary to keep Singapore's legal regime aligned with FATF's standards and recommendations.

Mr Deputy Speaker, Sir, I have three broad points to make on this Bill. The first point concerns the different timelines for local and foreign companies in updating their registers of key personnel. The amendment Bill, if passed, will result in local companies having to update their register of nominee directors within seven days, instead of the 14 days under section 173A of the Companies Act, while foreign companies may update their register of members within 30 days.

The Bill originally intended that foreign companies should update the register of members within 14 days. However, during the public consultation phase, the feedback was that this would be a challenge for foreign companies, especially if they have more than 50 members. While the feedback suggested that companies should be given 14 to 28 days, MOF and ACRA further extended the deadline to 30 days, stating that this would be aligned with the requirements in section 372 of the Companies Act. In other words, this feedback was accepted in the spirit of harmonising timelines in existing legal provisions. Indeed, this is a commendable, reasonable and consistent approach that avoids imposing multiple timelines and requirements on foreign companies.

However, feedback to amend requirements for local companies for consistency with existing legislation was not received in the same way. The amendment Bill, currently, intends for local companies to update their information on nominee directors and shareholders within seven days. With that being said, feedback from the consultation proposed that local companies should be given 14 days instead, as this would be line with section 173A of the Companies Act – which will really require a company to provide updates regarding changes to any appointment of directors, chief executive officer, secretaries, auditors and others within the period of 14 days. However, this feedback was not accepted. The implication is that local companies now have two timelines to follow: seven days to update particulars for nominee, directors; and 14 days for particulars of all other key personnel.

This begs the following question: what is the basis for requiring that local companies must update their information and nominee directors within a seven-day period when there is already an existing requirement to update information on various key position holders within 14 days? Should this provision be accepted by this House, there would be two timelines for local companies, in contrast to foreign companies being uniformly subject to one timeline.

The hon Minister Indranee Rajah stated earlier in her Second Reading speech that foreign companies may need more time to contact overseas stakeholders, directors, but local companies may also have some directors residing overseas, either on a long-term basis or who may be overseas at the relevant time. So, I am wondering why the timelines for both local and foreign companies cannot be harmonised.

Sir, my second point relates to the Government's plans to improve compliance with the other FATF recommendations. Singapore has made great progress in implementing Recommendation 24 on Transparency and Beneficial Ownership of Legal Persons through an amendment to the Companies Act in 2017 and further amendments in this Corporate Registers Bill before us. Singapore has strengthened its compliance with Recommendation 24 where Singapore was rated as "largely compliant".

However, Sir, the remaining other FATF recommendations which Singapore was found to be only "partially compliant with" are Recommendations 22, 28 and 35. Recommendation 22 concerns the application of customer due diligence and record-keeping requirements to designated non-financial businesses and professions (DNFBPs), such as the gambling and legal Industries. Recommendation 28 is about subjecting the aforementioned DNFBPs to regulatory and supervisory framework regarding anti-money laundering and counter-terrorist financing measures. Recommendation 35 relates to the available range of sanctions to do with parties that have failed to abide by anti-money laundering and counter-terrorist financing measures.

Given that it is ostensibly the goal of this Bill to counter money laundering and terrorism financing concerns and recognising the increasingly sophisticated methods employed to launder money and finance terror activities, how does the Government intend to improve compliance with these three FATF Recommendations 22, 28 and 35?

Sir, finally, I would like to raise some questions about the clarification of certain terms contained in the amendment Bill. These terms include "individuals with executive control", "executive control", and "accustomed". In their document published in response to key feedback received for this Bill, MOF and ACRA have stated that such terms are "to be clarified". As such, could the Minister advise when MOF and ACRA intend to provide such clarifications? I ask this, considering the need to avoid business uncertainty. Can such guidance be expected shortly upon the Bill's passage or coming into force?

Mr Deputy Speaker: Second Minister Indranee Rajah.

6.25 pm

Ms Indranee Rajah: Mr Deputy Speaker, I would like to thank Mr Louis Ng and Mr Leon Perera for speaking on the Bill and for their support. Mr Louis Ng raised three points of clarification, which I will address in turn.

First, Mr Louis Ng asked about the rationale for identifying CEOs and directors with executive control to be listed in the Register of Registrable Controllers, if a company is unable to identify a registrable controller. As I had explained in my speech earlier, there have been situations where a company claimed to have no registrable controllers with significant interest or control. Currently, such companies would not be required to enter any particulars into the register of controllers.

The intent of the Register of Registrable Controllers is to increase the transparency of natural persons who have beneficial ownership and control of companies. In situations where no registrable controllers are identified, persons with executive powers within the company are effectively exercising control. It is, therefore, necessary to include these persons in the Register if no other controller can be identified.

Mr Louis Ng also asked if it is necessary to provide particulars of the CEO and the directors in the register of registrable controllers when ACRA may already have the information in other registers.

The reality is that a company can have many directors, but not all of them exercise executive control over the company. The purpose of the new requirement is to ensure that companies identify the directors and CEOs with executive control, so that the beneficial owners are properly identified.

Next, let me address Mr Louis Ng's clarification on the definition of a nominee shareholder.

A shareholder is considered to be a nominee if he fulfils the following two criteria in respect of the shares that he holds.

First, he is accustomed to, or under an obligation, to vote in accordance with the instructions of any other person. The word "accustomed" suggests some degree of habit – meaning that there must be some consistent pattern of behaviour of the nominee shareholder voting in accordance with the instructions or wishes of any other person – and occasional instances of such behaviour would not be sufficient to constitute "accustomed".

The second criterion is that he or she receives dividends on behalf of his or her nominator. Practically, it would suffice if the nominee is expected to receive the dividends on behalf of the nominator, even if the dividends are not eventually distributed.

Our amendments are in line with FATF. I would also add that public companies listed in Singapore and their shareholders will not be subject to this new requirement, as provided for in the Fourteenth Schedule of the Companies Act.

Lastly, Mr Louis Ng asked about the compliance cost of the new requirements and the support that Government will put in place. To be clear and, as mentioned in my speech earlier, out of the four sets of amendments in this Bill, two are clarifications on timelines and only two are new requirements.

The new requirement to maintain a Register of Nominee Shareholders is unlikely to materially increase compliance costs, especially if the small businesses do not have nominee arrangements. Moreover, the responsibility on the company is only to maintain such a register, based on declarations by nominee shareholders. Companies will not be required to send notices to check if shareholders are nominees.

The other new requirement is to identify individuals with the executive control of a company or LLP to be listed in the Register of Registrable Controllers, if they are unable to identify a registrable controller.

Again, this is unlikely to increase compliance cost. I would also like to highlight that these new requirements will only apply to companies and LLPs. Small businesses that are set up as sole proprietorships or general partnerships will not be impacted by them.

The Government will help companies and LLPs to comply with the new requirements. ACRA will issue a Guidance on the new requirement of maintaining a Register of Nominee Shareholders. The Guidance will contain detailed instructions to clarify and explain the new requirements. For example, it will provide details on how a nominee shareholder and nominator can be identified and include a model template to support the maintenance of the register.

ACRA will also update the existing Guidance on the Register of Registrable Controllers for companies and LLPs to provide clarity on how these entities can identify persons with executive control as registrable controllers.

Mr Leon Perera had a number of questions. The first one, I believe, relates to the different timeframes.

The 30-day timeframe for foreign companies to update the Register of members is consistent with section 372 of the Companies Act, which requires foreign companies to update any changes in their particulars in ACRA's registers within 30 days. This also provides sufficient time for foreign companies to contact members who are located overseas and update the Register which is located in the registered office in Singapore.

In comparison, local companies are to update the Register of Nominee Directors within seven days of being informed of any changes by the nominee director. This provides sufficient time for local companies to update the register whilst ensuring that the registers are updated in a timely manner.

The general principle, really, is of the underlying assumption that if it is a local director, then it will be easier to contact the relevant persons and to do the updating.

This is not something which is particularly unique or startling, for the simple reason that there are many types of deadlines where more time is given to foreign companies, simply because they need to contact people who are overseas.

The second item that he raised was about items where we are partially compliant, rather than fully compliant. The answer is that we continually review our regulations and our practices to make sure that we are in line with international practices. Some things may take a little bit more time while some things need to be studied. So, for example, this latest set of amendments are a result of our review coming out of previous comments. So, it is a work in progress. But I think the Member can be assured that we will continue to work towards greater transparency and making sure that we are in alignment with international frameworks.

Finally, Mr Louis Ng asked when Guidance will be given on certain definitions. That will be done as soon as reasonably practicable.

Mr Deputy Speaker, I think that answers the questions and I beg to move.

Mr Deputy Speaker: Any clarifications?

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Ms Indranee Rajah].

Bill considered in Committee; reported without amendment; read a Third time and passed.