Beef up investor rights, but don’t tip the market towards litigation

DOMESTIC markets are entering a critical phase of renewal. As part of its equities market review last year, the Monetary Authority of Singapore (MAS) proposed significant changes to strengthen investor recourse – responding to longstanding feedback that retail investors struggle to self-organise, fund and sustain civil claims in market misconduct cases.

The intent is sound: improve confidence, modernise protections and ensure Singapore remains a credible market for capital formation. But the path forward must be carefully calibrated.

A designated representative – useful, but only with safeguards

One of MAS’ headline ideas is the creation of an independent designated representative to coordinate and bring legal action on behalf of affected investors.

The proposal has strong support among market participants. A central coordinator could streamline processes, reduce duplication, and give retail investors a more coherent route to pursue misconduct cases.

But stakeholders are clear – independence must be tightly defined.

In discussions on the MAS proposals, stakeholders want standards aligned with the Singapore Exchange’s (SGX) related-party rules, covering spouses, affiliates and prior business relationships.

Just as crucial is clarity on who verifies conflicts of interest – whether this responsibility lies with MAS, SGX Regulation or a separate body.

Commercial incentives matter, too. The consensus is that the designated representative should operate on a fixed fee basis, not profit-sharing or contingency arrangements, to avoid conflicts and keep the process focused on investor protection.

Issuers also flagged the need to guard against unwittingly opening the floodgates to a sudden surge in coordinated claims that could stretch resources, trigger reputational risks and, ultimately – and ironically – erode confidence.

These concerns do not oppose the proposal, but they underline a simple truth: Without robust guardrails, even well-intentioned reforms may backfire.

Funding support – helpful, but perception risks loom

The most debated part of MAS’ framework is the proposed grant scheme to fund meritorious investor claims. The motivation is apparent: Retail investors often lack the financial means to pursue complex cases, even when wrongdoing is evident.

Yet, the funding structure raises multiple concerns.

First, there is worry about the optics of shareholders “suing themselves”. Compensation in civil misconduct cases ultimately comes from companies – and by extension, their shareholders. A scheme that subsidises such claims risks blurring the line between investor protection and shareholder value.

Second, the proposed participation fees of S$200 to S$500 are widely viewed as too low. At that level, speculative claims become cheap gambles. Significantly higher thresholds – S$2,000 to S$5,000, or a percentage of claim size – should be considered to introduce friction and deter opportunistic participation.

Third, there is strong pushback against any grant structure without a mandatory clawback. Recovering the grant amount before distributing compensation ensures sustainability, prevents public funds from otherwise underwriting private gains, and signals that the scheme is not a no-risk windfall for claimants.

Perception risk is another major issue. If MAS funds a claim, would companies feel pressured to settle, fearing the case carries implicit regulatory endorsement?

To balance the process, there should be industry representation – such as SGListCos, an association of locally listed companies, or the Securities Investors Association (Singapore) – on the approval panel.

This would inject practical insight and bolster confidence in the scheme’s impartiality.

Lowering legal barriers – necessary, but handle with care

Beyond representation and funding, MAS proposes reducing legal barriers to investor claims. This includes:

• Widening piggyback options to cover default judgments, civil penalties, settlement agreements and more;
• Easing the burden of proving reliance in cases of misstatements or omissions;
• Removing statutory compensation caps to allow courts to assess damages based on circumstances.

These are pragmatic upgrades that reflect global best practices. But taken together with the funding scheme and the designated representative, they raise a strategic question: Could the ecosystem shift too far towards litigation, fostering a litigious culture?

Questions remain around the proposed changes and their wider implications, such as whether reducing the burden of proof may compromise established evidential safeguards.

Another concern is whether removing statutory compensation caps could result in open-ended liability with the knock-on impact of higher directors and officers insurance premiums, as well as heightened uncertainty for boards and management who may – invariably – divert substantial resources towards a more defensive, risk mitigation posture.

Singapore has traditionally favoured proportionate, cautious reform. The goal should be better claims – not necessarily more claims.

Getting the balance right

MAS’ initiative deserves credit for addressing a persistent gap in Singapore’s market architecture. Better investor recourse is essential to maintaining trust, reducing misconduct and anchoring Singapore’s status as a well-regulated international market.

But the execution will determine whether the outcome strengthens the market, or introduces new risks that act against the promotion of Singapore as an attractive listing venue.

Three guiding principles should shape the next phase of deliberation:

1. Independence must be unambiguous: Clear, SGX-aligned conflict-of-interest rules and transparent verification procedures are essential for credibility.

2. Funding mechanisms must be disciplined: Higher participation fees, mandatory clawbacks and rigorous merit assessments will deter frivolous engagement and ensure the grant scheme remains sustainable.

3. Governance must be balanced: Grant approvals should incorporate industry expertise to ensure assessments reflect commercial realities and avoid unnecessary perception risks. Focus should also be placed on reinforcing regulatory enforcement and strengthening SGX’s surveillance and intervention capabilities – not just encouraging shareholder suits.

Singapore’s strength has always been its ability to blend regulatory ambition with economic pragmatism. MAS’ reforms, if done right, can set a regional benchmark for investor protection, improving trust without tipping into excessive litigation.

The direction is right. The intent is laudable. Now, the framework must be refined so that investor recourse is not just strengthened, but also bolstered responsibly.

The writer is group general counsel of Jardine Cycle & Carriage. He is a senior accredited director of the Singapore Institute of Directors who serves on several boards, including the Global Guiding Council of One Mind at Work and the SGListCos Council. The views expressed here reflect the SGListCos Council’s discussion on the topic.