Singapore: MAS strengthens investor recourse in market misconduct cases

The MAS has published a consultation proposing new measures to enhance investor recourse avenues in market misconduct cases. These proposals are intended to address feedback MAS has received, that there are significant barriers to investors seeking compensation in market misconduct cases in Singapore. 

These changes (if enacted as proposed) will expose financial institutions to increased risk of more professional and well-funded investor claims, higher compensation amounts owed to investors and investors being able to obtain successful judgements against financial institutions.

Background

Currently, there are two ways for investors to seek compensation for losses arising from market misconduct. Under the Securities and Futures Act 2001 (“SFA”), investors may either:

1. bring a private court action for compensation ("independent action"); or

2. apply to court for compensation after the offender is convicted or a civil penalty order is made against them ("piggyback action"). 

However, MAS has identified key challenges for investors seeking compensation in market misconduct cases including, evidential hurdles in complex financial transactions, high costs requiring significant financial and legal expertise, and limitations of the piggyback provision in terms of the types of successful public enforcement actions that investors can rely on and the procedural steps involved. The latest proposals are intended to address those challenges.

Proposed Enhancements

1. Facilitating self-organisation

Currently, an independent third party can assist claimants, but it cannot bring action on behalf of claimants (meaning one or more investors must step forward as the lead claimant). MAS proposes changing this, such that an independent party can be appointed by investors as a designated representative and bring legal action on behalf of the investors for market misconduct cases. The independent party would have to be approved by an “approval authority” (potentially a court) who will consider whether the independent party meets the following criteria:

• a sufficient number of affected investors must have consented to the designated representative acting on their behalf;

• the designated representative must not have any conflicts of interest that may compromise its ability to act against the wrongdoer; and 

• the designated representative should be compensated such that the representative does not have a direct financial interest in the outcome of the case (i.e., no contingency fees or conditional fees are permitted) .

Ultimately, we expect this proposed change would mean professional designated representatives (such as law firms) will be able to bring more professional and threatening cases on behalf of claimants, against financial institutions accused of market misconduct.

2. Providing access to funding

MAS has received feedback that a key barrier to effective investor recourse in market misconduct cases is the high costs of bringing legal action. To address this challenge, MAS proposes establishing a grant scheme to co-fund meritorious investor actions (subject to proper guardrails and safeguards to avoid funding opportunistic litigation). The features of the grant scheme will include the following: 

• an Approval Panel (comprising lawyers, industry professionals, etc.) to review grant applications (including a legal opinion on whether the case is legally meritorious);

• the investor group must consist of a minimum number of retail investors (potentially 50) in order to be eligible for the grant;

• the grant will only be made available to actions commenced in Singapore courts for alleged market misconduct under the SFA;

• the grant can be used for all necessary costs including publicity costs of seeking out fellow affected investors, cost of organising investor briefings and meetings, legal fees and disbursements, expert fees, and potential adverse cost orders if actions prove unsuccessful; and

• MAS would collect participation fees from each investor upon grant approval, with the intent of discouraging frivolous participation in investor lawsuits.

This grant scheme (if enacted) would likely mean that financial institutions will have to face more investor litigation. 

3. Reducing legal barriers to civil action

Enhancement of piggyback provision

Under the piggyback provision, investors can bring compensation claims by riding on a criminal conviction or civil penalty order made against a wrongdoer. However, the piggyback provision currently does not extend to cases where MAS enters into a civil penalty settlement with the wrongdoer, or if there is a default judgment or consent order made against the wrongdoer. MAS proposes to expand the scope of the piggyback provision to include civil penalty settlements, default judgments and consent orders.

MAS proposes to simplify the process, such as by providing template forms and affidavits for investors to use to claim compensation under the piggyback provision. MAS also intends to publish a guidance note explaining when and how investors can use the piggyback provision, including the steps that investors must take to bring their claims and the timelines within which these steps must be taken.

Facilitating proof of reliance

Under the SFA, investors seeking compensation for losses suffered due to false or misleading statements or omissions must establish that they traded in the capital markets product either in reliance on the misstatement or in ignorance of the omitted fact, which may be difficult to establish.

MAS proposes amendments to the SFA to alleviate this difficulty, for example, by providing that proof of certain matters is sufficient to demonstrate the requisite reliance or ignorance. Such matters may include: that the misstatement is made to investors or is publicly known, that the misstatement had a material influence on the price of the capital markets product, and/or that the misstatement had a material influence on the trading behaviour of the investor.

This change would ultimately make it easier for investors to bring successful court cases against financial institutions.

Removal of statutory caps on compensation

Under the SFA, investors who suffer loss as a result of relying on false or misleading statements or omissions are allowed to obtain compensation. For many market misconduct offences, the compensation amount cannot exceed the amount of profit gained or loss avoided by the wrongdoer. MAS proposes to remove this statutory cap on compensation. Instead, the court will be given the flexibility to determine what would be a reasonable compensation amount in each case. This change could expose financial institutions to significantly higher financial risks in the event of investor litigation.

Next steps

The consultation closes on 31 December 2025.