Interpreting funds control
Existing regulations inadequate for risk management of Town Council monies
Letter from Quek Soo Beng
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I REFER to “Investments are regulated” (Dec 26), in which Mr Tang Tuck Weng of the Ministry of National Development quoted the sources of regulations to be the Town Councils Act (TC Act) and the Town Councils Financial Rules.
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To these, I add the Interpretation Act which vests a common investment authority in Town Councils (TC) and other statutory boards whose statutes do not have their own sets of investment policies, probably because they are not set up specifically for investment purposes.
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Aside from internal control rules on matters like conflict of interest as cited by Mr Tang, existing control rules cover the mandatory transfer of 30 per cent of funds to the sinking funds and the 35 per cent capping on sinking funds for investments in non-bank deposits and government bonds.
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The latter limit was imposed in reaction to the revelation of a significant money-losing investment in Creative Technology by the Holland-Bukit Panjang TC.
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As it stands, the 35 per cent investment cap is basically a money limit and by itself isinadequate as a risk management tool.
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It lacks the qualitative elements to control the quality and quantum of specific investments selected, without which it has again allowed investments in high-risk derivative products to be made and lost without breaking existing rules.
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Such rules are typically found in bank policies. Without such controls and investment objectives, TCs’ accountants, investment managers and their advisors, however capable, are sailing rudderless and in a manner as the wind blows.
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Yet, the authorities have persisted that existing regulations are adequate.
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Notwithstanding that, we should also look at the TC Act itself.
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The constitution of the Act is understandably silent on any investment objective and hence on any controls or limits on investments.
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Instead, it categorically requires money raised to be put in separate specific funds, including sinking funds, to meet its various estate management requirements (like for housing and commercial).
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Taken in this context of the letter, spirit and intent of the TC Act and its expressed objective of HDB estate management, capital preservation of the sinking funds is paramount.
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The primary and sole objective is to collect to spend, and not collect to invest. It follows therefore that the placement of any portion of such funds pending usage shall not put it at risk, not even for potentially attractive gains.
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That is the appropriate and right thing to do.
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And if there are excess funds, we should find ways to return them to HDB residents over time through a scheme of reduced conservancy charges.
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Separately, if HDB residents or constituents so desire, their Members of Parliament and TCs can operate investment funds for them.
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Perhaps the Attorney-General’s office should examine whether putting the sinking funds of TCs in risky assets such as equities and derivative instruments does not contravene the TC Act.
Existing regulations inadequate for risk management of Town Council monies
Letter from Quek Soo Beng
.
I REFER to “Investments are regulated” (Dec 26), in which Mr Tang Tuck Weng of the Ministry of National Development quoted the sources of regulations to be the Town Councils Act (TC Act) and the Town Councils Financial Rules.
.
To these, I add the Interpretation Act which vests a common investment authority in Town Councils (TC) and other statutory boards whose statutes do not have their own sets of investment policies, probably because they are not set up specifically for investment purposes.
.
Aside from internal control rules on matters like conflict of interest as cited by Mr Tang, existing control rules cover the mandatory transfer of 30 per cent of funds to the sinking funds and the 35 per cent capping on sinking funds for investments in non-bank deposits and government bonds.
.
The latter limit was imposed in reaction to the revelation of a significant money-losing investment in Creative Technology by the Holland-Bukit Panjang TC.
.
As it stands, the 35 per cent investment cap is basically a money limit and by itself isinadequate as a risk management tool.
.
It lacks the qualitative elements to control the quality and quantum of specific investments selected, without which it has again allowed investments in high-risk derivative products to be made and lost without breaking existing rules.
.
Such rules are typically found in bank policies. Without such controls and investment objectives, TCs’ accountants, investment managers and their advisors, however capable, are sailing rudderless and in a manner as the wind blows.
.
Yet, the authorities have persisted that existing regulations are adequate.
.
Notwithstanding that, we should also look at the TC Act itself.
.
The constitution of the Act is understandably silent on any investment objective and hence on any controls or limits on investments.
.
Instead, it categorically requires money raised to be put in separate specific funds, including sinking funds, to meet its various estate management requirements (like for housing and commercial).
.
Taken in this context of the letter, spirit and intent of the TC Act and its expressed objective of HDB estate management, capital preservation of the sinking funds is paramount.
.
The primary and sole objective is to collect to spend, and not collect to invest. It follows therefore that the placement of any portion of such funds pending usage shall not put it at risk, not even for potentially attractive gains.
.
That is the appropriate and right thing to do.
.
And if there are excess funds, we should find ways to return them to HDB residents over time through a scheme of reduced conservancy charges.
.
Separately, if HDB residents or constituents so desire, their Members of Parliament and TCs can operate investment funds for them.
.
Perhaps the Attorney-General’s office should examine whether putting the sinking funds of TCs in risky assets such as equities and derivative instruments does not contravene the TC Act.
