The Monetary Authority of Singapore (MAS) has launched a high-powered Review Group to consider measures to rejuvenate a flagging Singapore equities market. Second Minister of Finance Chee Hong Tat has promised “bold changes” and “new ideas”, while recognising that these require “trade-offs”.

Pundits call for our sovereign wealth funds to pump more money and listable companies into the market to drive activity and improve valuations. But to effect change, we must look beyond the financial sector. A paradigm shift in thinking is needed.

We purport to be a disclosure-based regime, but that is not the lived experience. Regulators take an almost prophylactic approach to protect investors from malfeasance. This generates regulatory frictions and resulting expenditures of time and costs.

A true disclosure-based regime would set out the standards for public disclosure and corporates would make the announcements they think fit – or suffer the consequences of any failures or inaccuracies. Investors take the risks of such a framework – that is the essence of caveat emptor – but must have the levers to hold corporates accountable when their compliance falls short.

A disclosure-based regime must thus be backstopped by robust and effective dispute resolution mechanisms, accessible by investors with rights to enforce. The existence, practicality and trustworthiness of these mechanisms is a vital part of a healthy ecosystem: discipline of the free market rather than discipline by the regulator.

Enhance Information Rights

First, enhance information rights.

A disclosure-based regime is premised on the ability of investors to make informed decisions based on disclosure that is both adequate and effective. In other words, the assumption is that the market is capable of self-regulation. But this only works if shareholders have sufficient information rights. While listed companies are obliged to announce certain material information, the average shareholder ultimately only knows what is in fact announced, including what the company deems fit to subsequently update.

The curiosity of a few can benefit the many here. We propose enhancing information rights so that if shareholders ask material questions of companies, the company has to (a) disclose those questions and answer them or (b) explain why it is not answering. Added to this could be a mechanism where, if the shareholder is dissatisfied, they can apply to the Court or Singapore Exchange (SGX) for the information. Safeguards and guidelines can be drafted to strike a fair balance between shareholder activism and information on the one hand, and a company’s right to manage its own affairs and conduct its business, on the other.

Enhanced Representative Action Regime

Second, if problems do arise, shareholders must have recourse to legal mechanisms in an efficient and cost-effective manner. Enter the representative proceeding.

In essence, one or more persons representing a “class” of persons is entitled to bring an action on behalf of that class if they have a common interest in the proceedings and have given their consent.

Singapore’s court processes allow such representative actions but these are not common and are subject to the Court’s discretion.

Minority shareholders with a potential claim against a listed company often lack the resources and/or knowledge to pursue meaningful remedies, or the wherewithal to assemble the class of potential claimants. For example, a shareholder has no legal way to contact other aggrieved shareholders, and any litigation would then have to be by the sole shareholder, the cost and risk of which can be wildly disproportionate for such individual’s benefit. This has the potential to stifle legitimate claims. What use are information rights if a minority shareholder cannot seek redress for wrongdoing he becomes aware of?

Naysayers will argue that expanding representative proceedings opens the floodgates for litigation. We say that the discerning use and encouragement of this enhances access to justice and holds wayward corporations to account. In 2023, shareholders secured a $1 billion settlement against Wells Fargo after the filing of a class action in 2020 to resolve claims that the bank had defrauded shareholders about its progress in recovering from a series of scandals over its business practices and treatment of customers. That would not have been possible for an individual shareholder without the use of a class action. Closer to home, perhaps enhanced information rights coupled with representative proceedings may have obtained some redress for the many victims of the $8 billion penny stock crash in 2013, masterminded by John Soh and Quah Su-Ling.

A non-exhaustive list of enhancements to facilitate representative actions may include the following features: establishing clearer, more flexible and more inclusive guidelines for what constitutes a class.  For example, the fact that a potential claimant owned a specific counter within the relevant period could suffice to establish membership of a class.

Allow regulators or consumer associations to initiate representative actions on behalf of affected consumers.  In this case, it would be the SGX, and potentially SIAS.  This would let public or quasi-public bodies take a more active role in addressing large scale harm, and also address the issue of resourcing, expertise and public trust when the prosecution of the claims is in their hands.

The use of an opt-out mechanism, where an individual or group of shareholders could represent the entire class unless someone opts out. Currently, the representative model is an opt-in system. This would have to come with safeguards such as requiring court permission, but if permitted, would likely increase participation where there has been widespread harm.

However, in the Singapore litigation system, the loser pays or contributes to the winner’s legal fees. This puts the small shareholder at greater financial risk. Enter Conditional Fees and Litigation Funding.

Expand Third-party Funding / Conditional Fees

Third-Party Funding and Conditional Fees are distinct but related. With Conditional Fees, the lawyer charges a lower base fee but is entitled to apply an uplift upon a successful claim. This is different from what is commonly referred to as contingent fees, which are based on a percentage of the damages recovered. We do not at this point advocate contingency fees as they are more controversial, with some believing that they encourage speculative litigation. However, a conditional funding model reduces claimant risk as it reduces the fees they have to pay upfront, before the outcome is known. This cost can be a huge disincentive to commence large scale litigation. There is still the risk of “loser pays”.

Which brings us to Third-Party Funding, in other words allowing external professionals to fund litigation. Generally, funders (a) are allowed to charge a percentage of the sums recovered (which is different from a conditional fee) and (b) often agree to pay adverse costs orders. Third-party funding is already allowed in Singapore in limited circumstances (including arbitration and certain proceedings in the Singapore International Commercial Court). These circumstances can and should be expanded.

The average investor may not have the resources to pursue complex or protracted litigation. Allowing third-party funding improves access to justice.

Meritorious claims certainly exist amongst individuals, not only businesses and corporates.  Where many individuals have dispersed small claims against a listed entity, a combination of enhanced representative actions and more liberal third-party funding not only enables true access to justice but can hold errant companies to account.  Of course, third-party funding must be adequately regulated.

Singapore faces global headwinds that are not always easily overcome despite our best intentions. Our equities market is not inoculated from this. Nevertheless, with some imagination and a willingness to challenge conventional wisdom, we can revive and turbocharge our equities market.