The Singapore High Court has found former WBL Corporation chief financial officer Kevin Chee Fai Lew guilty of insider trading under the city's Securities and Futures Act (SFA), the first such ruling under the law and a signal of tighter oversight of the region's corporate finance executives.
Lew, who was employed as both CFO and chief risk officer at WBL from 1998 to 2007, was convicted under the SFA's civil penalty regime of selling 90,000 shares in the company after becoming aware that it would report a third-quarter loss. He is now awaiting the court's sentence, which could include fines and court costs of up to three times Lew's profit from the trade under guidelines that went into force in 2004.
"Insider trading unfairly tilts the playing field against other market participants and undermines investor confidence in the integrity of our capital markets," said Leo Mun Wai, assistant managing director of the Monetary Authority of Singapore's (MAS) capital markets group, in a statement. "As this case demonstrates, MAS will use every effort and resource to enforce our insider trading laws."
Drew and Napier, a local law firm in Singapore, said in a legal update that the ruling provided "much needed" guidance on how the civil penalty regime under the SFA would be implemented.
The ruling is seen by many as a sign that Asia's regulators are tightening their oversight of markets and finance executives around the region. "It is indicative of the new environment that we're entering into, one that is going to be more highly regulated," said Chris Leahy, managing director of Greater China and Southeast Asia at Kroll, on what the ruling means for CFOs and treasurers. "It's a reaction to market excesses."
Leahy said that Singapore and Hong Kong are "stand-outs" in their efforts to get tough on illegal acts in the financial markets but that other regulators were also trying, specifically naming Malaysia. He added that regulatory regimes in other jurisdictions, such as Indonesia and the Philippines, were evolving and while they have indicated a desire to step up enforcement activities, they had "bigger fish to fry" at the moment.
Last year, a Hong Kong district court found Du Jun, a former managing director and investment banker in Morgan Stanley's fixed-income group, guilty of insider trading in a case investigated by the city's Securities and Futures Commission.
Leahy recommended CFOs and treasurers in Asia be more careful and more aware of local regulations. And, if something suspicious comes to their attention, to investigate and address it quickly or face harsher penalties from regulators.
One concern on many people's minds is too much regulation. Financial reform proposals in Europe, the UK and US include higher levels of compliance for both banks and anyone who deals with them, including CFOs and corporate treasurers. Selwyn Blair-Ford, a senior domain expert for risk and regulatory compliance at vendor FRSGlobal, said proposed legislation would reduce the amount of available funding in the market, especially for corporates, in an interview earlier this year.
"The key with too much regulation is will people become so tied up in red tape and regulatory disclosure that it will stymie free markets and the ability of companies to operate," said Leahy.
Despite the potential downside, the fact that regulatory enforcement in Asia has increased is a good sign. A sign of mature markets in Hong Kong and Singapore and a local example the rest of the region can look up to.