Regulation of Discretionary Decisions for Capital Allocations of Index-linked Funds
Prime Minister's OfficeSpeakers
Summary
This question concerns whether the Monetary Authority of Singapore (MAS) intends to regulate index providers’ discretionary decisions that impact capital allocation for index-linked funds. Deputy Prime Minister and Minister for Finance Lawrence Wong stated that the Securities and Futures Act 2001 already governs financial benchmarks and prohibits index manipulation. Retail funds must use representative indices and provide transparent disclosures, while fund managers are required to conduct due diligence on providers to manage risks and conflicts. MAS may designate systemically important benchmarks for stricter regulation, but current index-linked funds represent too small a portion of retail funds to warrant this status. Together, these measures safeguard the credibility of financial benchmarks and protect investor interests in Singapore through established governance and accountability mechanisms.
Transcript
50 Mr Murali Pillai asked the Prime Minister whether the Monetary Authority of Singapore (MAS) intends to regulate index providers of index-linked funds traded in Singapore in respect of discretionary decisions by these providers that may have an impact on capital allocation by the said funds, particularly in stocks and bonds.
Mr Lawrence Wong (for the Prime Minister): The financial benchmarks regime under the Securities and Futures Act 2001 governs the activities relating to the setting of financial benchmarks, which include equity and bond indices. It is an offence for any person to manipulate an index administered in Singapore, or for a person in Singapore to manipulate an index that is administered elsewhere.
Index-linked funds that are offered to retail investors in Singapore are required to comply with strict regulatory and disclosure requirements. The underlying index must be representative of the market or sector which it aims to replicate. Key information on the index composition, methodology as well as significant changes to the index, must be accessible to investors to enable them to continuously evaluate the representativeness and objectivity of the underlying index.
In addition, fund managers using indices for index-linked funds are required by regulation to conduct due diligence on index providers, evaluate suitability and risks associated with the use of indices and ensure that risks, including potential conflicts of interest, are properly addressed.
Where benchmarks are assessed to be systemically-important, the Monetary Authority of Singapore (MAS) will designate and regulate them to ensure that they have proper governance processes and accountability mechanisms. MAS had designated the Singapore Interbank Offered Rate as a benchmark that is systemically important for Singapore, as it was widely referenced by banks to set interest rates for residential property and commercial loans in Singapore. In the case of index-linked funds, the two largest funds account for only 3% and 1% of Singapore-constituted retail funds, respectively. Given this, MAS has not assessed and designated any such indices to be systemically-important.
In summary, taken together, the overall framework safeguards the credibility of financial benchmarks in Singapore as well as investors' interest in index-linked funds.