9 Ms He Ting Ru asked the Prime Minister (a) whether MAS will consider leading a specific study into the regulatory lessons to be learnt from the collapse of cryptocurrency exchanges such as Terra and FTX; and (b) whether there needs to be tighter requirements to ensure the stability of regulated cryptocurrency exchanges in Singapore.
10 Mr Dennis Tan Lip Fong asked the Prime Minister whether the Government intends to introduce further measures or safeguards to regulate cryptocurrency trading or investment, as well as to protect Singaporean retail investors in general.
12 Ms He Ting Ru asked the Prime Minister in view of the various insolvencies of cryptocurrency exchanges and extreme volatility in the cryptocurrency markets in the last year (a) how will this affect our efforts to become a robust global blockchain and fintech hub; (b) whether MAS will consider further regulatory measures to prevent any contagion into the wider cryptocurrency, fintech and financial markets; and (c) if so, what are they.
15 Mr Leon Perera asked the Deputy Prime Minister and Minister for Finance given that the Government does not direct GIC and Temasek Holdings’ individual investment decisions but holds their boards accountable for their performance, whether the Government will consider creating a bipartisan Standing Select Committee of Parliament that meets regularly to question the boards of the two sovereign wealth funds on their performance, strategies and risk management approaches, on a confidential basis.
16 Assoc Prof Jamus Jerome Lim asked the Deputy Prime Minister and Minister for Finance in light of MAS’ proposed measures to reduce cryptocurrency trading risks, whether similar suggestions have been promulgated to Government-related investment entities such as GIC and Temasek Holdings.
17 Ms He Ting Ru asked the Deputy Prime Minister and Minister for Finance (a) whether there are regulations or a governance framework as to the basic level of due diligence to be observed by entities listed in the Fifth Schedule of the Constitution handling Government assets which involve the investment of significant public funds; and (b) whether there are ongoing due diligence or audit requirements for these investments.
18 Assoc Prof Jamus Jerome Lim asked the Deputy Prime Minister and Minister for Finance (a) whether the Ministry tracks the extent of concentration of investments by GIC and Temasek Holdings investment vehicles either by (i) geography or (ii) asset class; and (b) whether there are thresholds that trigger warnings of excessive portfolio risks to the Ministry.
19 Mr Gerald Giam Yean Song asked the Deputy Prime Minister and Minister for Finance (a) whether there are guidelines or restrictions on statutory boards and entities listed in the Fifth Schedule of the Constitution of the Republic of Singapore with regard to investing in cryptocurrency-related assets; (b) if so, what are those guidelines or restrictions; and (c) whether all Statutory Boards and scheduled entities have fully adhered to those guidelines.
20 Mr Leon Perera asked the Deputy Prime Minister and Minister for Finance as Temasek Holdings and GIC are Fifth Schedule entities, whether the Government will consider adding the two sovereign wealth funds to the audit ambit of the Auditor-General’s Office and oversight by the Public Accounts Committee, on the condition that commercially sensitive elements in any audit report be made available to legislators but redacted from published reports.
The Deputy Prime Minister and Minister for Finance (Mr Lawrence Wong) (for the Prime Minister): Mr Speaker, with your permission, can I answer Question Nos 3 to 20 as well as all other Parliamentary Questions (PQs) related to the bankruptcy of the trading platform FTX together?
Mr Speaker: Please do.
Mr Lawrence Wong: Sir, before I address these questions, let me reiterate the Government and MAS’ overall approach to digital assets.
We have drawn a sharp distinction between growing an innovative and responsible digital asset ecosystem, and speculation in cryptocurrency, which we actively discourage for the retail public. We encourage and support innovation in digital assets because we see potential for new technologies to transform cross-border payments, trade and settlement, as well as capital market activities.
Early forecasts have proven too optimistic and it is still not clear that blockchain technology will develop beyond limited use cases into a gamechanger for a wide range of industries. This is why we are piloting specific use cases to test the possibilities in the financial sector.
Cryptocurrencies are a different matter. They are purely speculative as an investment asset and have no intrinsic value. That is why MAS has consistently warned the retail public not to deal with them.
Members have raised two broad issues in their questions. First, on regulatory measures and the impact of the FTX bankruptcy on our financial system; and second, on the investments made by Temasek in FTX itself.
Let me start with the first issue. The collapse of FTX and other major cryptocurrency platforms should bring about much-needed rationalisation in the cryptocurrency space. The repercussions on the cryptocurrency ecosystem globally are still unfolding and we are watching this.
We do not have data on the number of Singapore retail users of FTX, just as for other platforms that are not licensed here and do not operate in Singapore. Unfortunately, those who invested in cryptocurrencies through FTX’s global platform would have lost money.
As for Singapore’s broader financial system and economy, our assessment is that spillovers from the FTX collapse will be very limited. MAS’ surveillance shows that key financial institutions in Singapore have insignificant exposures to cryptocurrency and crypto players.
MAS has explained its approach to regulating financial institutions providing cryptocurrency services, also known as digital payment token (DPT) service providers, in Singapore.
Such DPT service providers are regulated by MAS to address money laundering, terrorist financing and technology risks. Whether the DPT service providers can address these risks robustly is a key consideration in licensing them to operate in Singapore. Importantly, DPT service providers are currently not regulated for safety and soundness, nor for investor protection. This is also the prevailing approach in most jurisdictions. MAS has been consistently warning since 2017 that dealing in cryptocurrencies is hazardous. Recent events have underscored these hazards.
MAS has also in its recent statements explained the role of MAS’ Investor Alert List (IAL) and why FTX was not listed on it. Let me set this out again.
The IAL serves a very specific purpose: to warn the public of entities that may be wrongly perceived as being regulated by MAS, especially those who solicit Singapore customers without the requisite licence. MAS did not have reason to list FTX on the IAL because there was no evidence that it was soliciting users in Singapore. This is unlike Binance, which was placed on the IAL for actively soliciting users in Singapore without a valid licence and is being investigated presently by the Commercial Affairs Department (CAD) for possible violation of the Payment Services Act.
This does not mean that all entities which are not listed on the IAL are safe to deal with. MAS cannot possibly provide an exhaustive list of all the unsafe or unlicensed entities that exist in the world.
Going forward, MAS plans to introduce some basic investor protection measures for DPT service providers which are licensed in Singapore. MAS recently published a consultation paper, which includes proposals that DPT service providers, amongst other things: (a) administer a risk awareness test to evaluate if potential retail customers are suitable for accessing cryptocurrency services; (b) segregate customers’ assets from their own assets so as to prevent lending out of customers’ money and protect customer interests should the service provider fail; and (c) refrain from operating a trading platform while simultaneously taking proprietary positions for their own account, to prevent conflicts of interest.
After receiving industry and public feedback, MAS will finalise the proposals and implement appropriate regulatory measures.
Let me emphasise that even with these proposed measures, MAS will not be able to prevent DPT service providers from failing or customers from suffering losses. Cryptocurrency platforms can collapse due to fraud, unsustainable business models or excessive risk-taking. FTX is not the first cryptocurrency platform to collapse, nor will it be the last. Further, even if a cryptocurrency platform is well-managed, cryptocurrencies themselves, as I mentioned earlier, are highly volatile and have no intrinsic value. Those who trade in cryptocurrencies must be prepared to lose all their value. No amount of regulation can remove this risk.
Next, let me address the Temasek investment in FTX and the Government’s stance on our investment entities and Statutory Boards’ exposure to digital assets and cryptocurrencies.
The Government does not prescribe guidelines on the allocation of specific assets or asset classes, whether for cryptocurrencies or other assets. This applies for our Statutory Boards, as well as our three investment entities managing our whole-of-Government assets – namely Temasek, GIC and MAS.
Statutory Boards have specific mandates and functions. They are not investment entities, but they have the flexibility to invest their surpluses and they typically do this through external fund managers, under the oversight of their respective supervising boards and Ministries. We expect Statutory Boards to make prudent investment decisions and not be distracted from their core functions.
For our investment entities, the Government sets out its risk tolerance limits, monitors for appropriate diversification in asset classes, sectors and geographies and ensures that downside risks are not excessive. In this spirit, the Government does not prescribe an exclusion list for specific assets. But we expect the entities to incorporate environmental, social and governance, or ESG, considerations into their investment processes. They should do so in a way that best suits their investment mandates and preserves their reputation with global partners and markets.
Ultimately, the Government holds the boards and management teams responsible for formulating investment strategies in accordance with the Government’s overall risk tolerance.
One of the areas Temasek and GIC’s private equity arms operate in is new technology and early-stage companies.
There will always be new waves of innovation and technology that seek to disrupt the status quo. Some waves will turn out to be hype and fizzle out over time. Other technologies will prove revolutionary and transformational, like the Internet. But even with genuinely revolutionary technology, there are risks. Many startups will fail, while a few will prove successful and grow into industry leaders, like Tencent or BioNTech.
The skill of venture capitalists lies in discerning the promising projects and backing them. Risk taking is an essential part of such investments.
As long-term investors, our investment entities have to operate in this space. They do their best due diligence based on the information available. Having made the investments, they monitor the investee companies closely, but no amount of due diligence and monitoring can eliminate the risks altogether.
Insofar as blockchain technology is concerned, Temasek and GIC have some investments in the digital assets space, but they have no direct exposure to cryptocurrencies.
It is disappointing when there is a loss by our investment entities, as in the case of Temasek’s investment in FTX. Even more so, because the loss arose from what turned out to be a very badly managed company and from possible fraud and mishandling of customer funds. The fact that other leading global institutional investors, like BlackRock and Sequoia Capital, also invested in FTX does not mitigate this.
What happened with FTX, therefore, has not only caused a financial loss to Temasek, but also reputational damage. Temasek recognises this and has issued a comprehensive statement to explain its due diligence process and the circumstances leading to its investment in FTX. Temasek has also initiated an internal review by an independent team to study and improve its processes, and to draw lessons for the future.
I am confident that the Temasek Board and management team will learn and improve from this experience. At the same time, we should see this FTX loss in the broader context of Temasek’s performance in early-stage investments. After writing-off the FTX investment, Temasek’s early-stage portfolio, as at March this year, has generated an internal rate of return in the mid-teens over the last decade, better than industry averages.
The FTX loss will also not impact the Net Investment Returns Contribution (NIRC), as the NIRC is tied to the overall expected long-term returns of our investment entities and not to individual investments.
Following the FTX collapse, some Members have suggested implementing more guidelines and safeguards over the investments made by Temasek and GIC. That is understandable, but the governance structures in place today for Temasek and GIC are already more extensive than those of a typical company.
Temasek, which is an investment holding company, is audited by commercial auditors. GIC, which manages public funds, is audited by the Auditor-General. As Fifth Schedule entities, both Temasek and GIC are subject to the President’s oversight of their budgets and key appointments. In Parliament, if there are any questions by Members about the performance of the entities, MOF will respond to them, as we are doing now.
There is, therefore, no need for additional audit requirements or Parliamentary Committees. Instead, we should insulate the boards from political pressures. Let them do their work, carry out their responsibilities and fulfil their investment mandates, commercially and professionally.
The investment entities themselves publish their performance with respect to broad market indices. In Temasek’s case, the MSCI equities’ indices, and in GIC’s case, the Reference Portfolio, comprising 65% global equities and 35% global bonds. These market indices and data from reputable global investment funds serve as useful reference. But ultimately, the Government evaluates the entities based on their long-term performance and their track records show that they have performed creditably, even in challenging environments.
Sir, in conclusion, the FTX loss is disappointing and is being taken seriously. But the occurrence of investment losses does not in itself imply that the governance system is not working. Rather, this is the nature of investment and risk-taking. What is important is that our investment entities take lessons from each failure and success, and continue to take well-judged risks in order to achieve good overall returns in the long term. In this way, we can continue to add to our national reserves and provide a stable income stream to fund Government programmes for a long time to come.
Mr Speaker: Mr Gerald Giam.
Mr Gerald Giam Yean Song (Aljunied): I thank the Deputy Prime Minister. I have two supplementary questions. Where are the risk tolerance levels spelled out to Temasek, GIC and MAS? Are they published anywhere? And under current statutes and regulations, are Temasek, GIC and MAS free to invest in anything they want to, as long as their own boards or management teams approve them and they fall within the risk tolerance level?
Secondly, does the President have any say in the setting of investment parameters, mandates, objectives or risk tolerance levels of the investments by Temasek, GIC and MAS?
Mr Lawrence Wong: Sir, I think it is important to understand the system that we have. The keys to any successful long-term reserve management systems are governance, professional management and a long-term horizon.
In our case, we have put in place a very strong governance process and system, where the Government is the shareholder – we do not micro-manage, we do not decide on investments, we do not prescribe asset classes or assets, but we have a role in appointing board members, senior management and we hold them accountable to delivering good, long-term performance. And the President is part of this governance process too because she, in terms of the appointments of people, has the powers as well.
So, within that governance system that we have in place, there are processes, there are risk metrics to monitor, there are clear accountabilities. And it is a system that has worked well over the decades and has delivered good long-term outcomes for Singapore.
Mr Speaker: Mr Leon Perera.
Mr Leon Perera (Aljunied): Thank you, Mr Speaker, Sir. Just a few questions to the Deputy Prime Minister. Firstly, if I heard the Deputy Prime Minister correctly in his earlier statement, he said, with respect to the sovereign wealth funds, the Government is not prescriptive, it does not prescribe assets and asset classes. But he also said that the Government monitors the portfolios, if I heard him correctly, for geographic diversification and downside risk.
I am just a little curious, how those two things are reconciled. What kind of discussion will the Government have, if it monitors those risks and diversification and feels that they are off? Does the Government actually intervene, and would that not then be prescriptive if such a situation arose? I just was hoping the Deputy Prime Minister could expand on that.
My second supplementary question is on the rotational audits by the Auditor-General’s Office. I thank the Deputy Prime Minister for confirming that GIC is subject to the AGO audits, but Temasek is not. I would just like to ask why that is the case, since they are both managing public funds? It could be urged that Temasek has the legal form of a private company, but against that, I would say that right now, the AGO does audit Ministries and Statutory Boards that own private companies, for example, MOH Holdings or EDB Investments, and presumably those companies under a Statutory Board are also subject to rotational audit by the Auditor-General. So, the fact that Temasek is a private entity should not, in and of itself, mean that it does not need to be subject to rotational audits by the Auditor-General’s Office.
My last supplementary question is really, would the —
Mr Speaker: Please keep it to two supplementary questions for now, please. Thank you.
Mr Leon Perera: Okay.
Mr Lawrence Wong: Sir, before answering Mr Leon Perera, I forgot to reply to Mr Gerald Giam’s question on the publication of the risk limits. These are published in the following sense. For example, the risk tolerance, the amount of risk that the Government has set out for GIC is expressed in our reference portfolio – 65/35. That sets out the kinds of risks that the Government is prepared for GIC to take, and therefore GIC as an active manager publishes its performance with regard to that risk and the performance that it tracks with regard to the reference portfolio.
Likewise, in Temasek’s case, it is different. It is not a portfolio manager. It is largely an all-equities investor. But in its annual Temasek review, Temasek will put out some of its risk considerations and its risk parameters. So, to the extent that these risks are disclosed, the investment entities do have disclosures through their respective platforms – largely through their annual reports.
On Mr Leon Perera’s question on how do you square the monitoring of assets, of geographies and all that, with the policy of leaving the boards to make their own decisions? Well, we do it because monitoring is not prescribing. We monitor the portfolios, we get data, we get information, we monitor them, we subject these portfolios to stress tests, given something that collapses in an extraneous event that takes place, a crisis, a fallout in cryptocurrencies. We subject them to rigorous stress tests to make sure that the overall portfolio, even under these stress tests, does not have significant losses beyond the threshold that we think would be too much.
So, we monitor. And if indeed the stress test shows that there is too much risk being taken or concentration of a particular asset that may lead to some vulnerabilities, then we provide feedback to the entities. They have the discretion then to take the necessary actions, to adjust. So, that is how we operate; not by prescribing but monitoring and setting in place overall risk parameters from which our entities operate.
On audit, it is not unusual at all for private auditors to audit even public agencies. Statutory Boards themselves are subject to commercial auditors, private auditors, not to the Auditor-General. So, unless we are suggesting that somehow these private auditors are not as good as the Auditor-General, I do not see any reason why. It is not unusual that the Auditor-General has a remit, largely within the Public Service and Government Ministries. But for some Statutory Boards, for a commercial entity like Temasek, which also within it, has a portfolio of listed entities, well, I think we should let commercial auditors do their job. And so far, they have been doing a very good job.
Mr Speaker: Mr Leon Perera.
Mr Leon Perera: Thank you, Mr Speaker, Sir. I just have one supplementary question to question the Deputy Prime Minister on his reply to my earlier supplementary question. So, it is just one, you can count me on that.
Of course, Ministries, Statutory Boards are subject to commercial external auditors and that includes the private companies under them. And GIC is also subject to commercial external auditors as is Temasek. But Ministries, Statutory Boards, GIC and the private companies under Ministries and Statutory Boards are also subject, on top of that, to the Auditor-General’s audits. So, why is it then, that Temasek is not subject to the Auditor-General’s audits?
Mr Lawrence Wong: Sir, not all Statutory Boards are subject to the Auditor-General’s audits. But in fact where there are issues that come up – could be in a Town Council, it could be in a Statutory Board, it could be in Temasek – if there are reasons, we will have no hesitation to ask the Auditor-General to go in to do a full audit.
Mr Speaker: Ms He Ting Ru.
Ms He Ting Ru (Sengkang): Thank you, Mr Speaker. I have two supplementary questions. First, the Minister shared that licensed DPT service providers are required to put in place a risk assessment test, among other things. However, as such measures have yet to be put in place, unlicensed service providers, such as FTX, could still have conducted business activities in Singapore with our retail customers. How does the Government intend to address this gap?
And my second question is, I note that Temasek’s investment at FTX, at US$275 million, was a small percentage of their overall portfolio. However, given the concerns around the viability of blockchain and crypto-related industries, will the Minister be willing to share what is the number of companies’ dollar value and percentage exposure to service providers and technology infrastructure players related to blockchain and the digital asset space to assure Singaporeans, especially when The Straits Times reported on 24 November that GIC is an investor in the group, with ties to troubled cryptocurrency broker Genesis Trading?
Mr Lawrence Wong: Sir, on the first question, the gap in regulations will exist, no matter what we do. Even if we have a very comprehensive system in Singapore, it does not stop Singaporeans from going overseas or going online to overseas platforms to invest in cryptocurrency. This is not going to stop that from happening.
I think what we should do is focus on what are reasonable regulations, learning from the recent experiences and put in place a sound regulatory system, but at the same time, continue with the reminders and public education we have been doing all this while for so many years. We will step up our efforts there to let people know the risk of investing in cryptocurrency, that this is highly volatile, it has no intrinsic value; and really, anyone who does this has to go in with their eyes open.
On the second question, I have already actually answered that in the context of Ms Tin Pei Ling’s first supplementary question, setting out the investments that our investment entities make in this digital asset space within the context of their holdings and early-stage companies. We do not go beyond that because we do not go into specific company investments but within that broad context and the parameters I have set out, I hope Members are assured that the exposures are limited and it is within the context of a very well diversified portfolio, which will then allow us to still earn good returns on other projects, even though there may well be a few projects where there are losses. But that is a whole point of diversification in investments.
Mr Speaker: Mr Pritam Singh.
Mr Pritam Singh (Aljunied): Thank you, Mr Speaker. I thank the Deputy Prime Minister. Just following up on the Deputy Prime Minister’s replies to some of the supplementary questions. With regard to Temasek’s independent review of the FTX imbroglio, this independent review, is it an external one, external to Temasek, or is it internal, a Temasek team reporting on Temasek’s investment in FTX?
The second question is, what thresholds must be crossed before AGO steps in to audit a Temasek investment or Temasek investment process in a company?
Mr Lawrence Wong: Sir, this Temasek review that it has initiated is an internal one. It will be led by people who are separate from the investment team that made this decision. So, they will be separate, they will not be clouded by what steps were taken and they will report directly to the board, as I mentioned just now.
What further actions might MOF, as shareholder or Government, take? Is this sufficient in this case or what thresholds will be reached in order for us to trigger further action? Quite aside from this case, for which Temasek is doing its part and is pursuing this review, which I would add separately that it does this, for FTX, but it actually also has done this in the past before, when there are similar instances. It does not happen very often, but when there are instances where, for example, there is a write-off in an investment project, where there is a permanent impairment and it is an investment that did not go well, then they would initiate something like this. They have done this before and that is what they are doing again. It is a step-up from their usual review process, which applies to all investments. In this case, as has happened in the past, Temasek feels that this is a significant project and there is something to be learnt from the experience, so they are undertaking this separate review.
Will we go beyond such a separate review to call in external auditors, for example – I think it is the question that the Leader of the Opposition raised. Certainly, the Government will not rule out doing so, but it is not just a matter of an investment loss. It would be something that we feel has gone wrong within the organisation, possibly. There might be negligence. There might be fraud, there might be misconduct. So, it has to be of that significant threshold for us to say, “Look, something is not right within the organisation; let us commission or get the Auditor-General to go in and do a proper audit and investigation”. And we will not rule out if something like that were to happen.
Prime Minister’s Office
30 November 2022