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Morals over laws, substance over form
NEW regulations drawn up since the global financial crisis have yet to address the root of the problem but new risks are now lurking in the horizon.
In that context, "trepidation" is a strong word that PhillipCapital Group executive chairman Lim Hua Min uses to describe his feelings on receiving the Singapore Businessman of the Year Award.
One of the major risks facing financial incumbents is the encroachment of platform companies into the industry, he flags.
Among them, Japan's e-commerce giant Rakuten has entered the fray and now derives a significant portion of its income from stockbroking. It remains to be seen if Alibaba, Tencent or even Apple will start nibbling at the pie too.
But what is clear is that the world is moving towards a "zero marginal cost society", with disruptors potentially upending incumbents with lower marginal costs and threatening jobs, Mr Lim says. This means that PhillipCapital will have to become more platform-centric and less company-centric going forward.
"In some ways, the company must decline relatively, but the platform must grow," he stresses. "Whether you like it or not, there will always be people trying to attack your boundaries, so you might as well expand it. In so doing, you will end up with not just economies of scale but also economies of scope."
Mr Lim, a recipient of several awards in the past, wears many hats. He is also chairman and non-executive director of financial services group IFS Capital, a member firm of PhillipCapital, and chairman of general insurer company ECICS, a subsidiary of IFS Capital. Elsewhere, he sits on the board of London-listed financial services firm Walker Crips Group PLC.
He has earlier held senior positions in the former Stock Exchange of Singapore (SES) and chaired the SES Review Committee in 1997, which was responsible for crafting recommendations to make the Singapore capital market more globalised, competitive and robust to compete globally. Mr Lim was also one of the first chairmen of the Securities Association of Singapore.
The industry veteran notes that in recent years, the pendulum has swung towards over-regulation. "After one incident, laws are established to prevent that incident from happening again. But you are affecting the 99.9 per cent of those who have not cheated. They will suffer because of the 0.1 per cent who cheated."
Just consider the amount of time spent in board meetings on regulatory compliance vis-a-vis the business, he adds. "In the name of good governance, more complexity is created when, sometimes, simplicity will do."
Even as more laws have been enacted since the global financial crisis to regulate the financial sector, the industry has come up with new ways to bypass or create more leverage to boost their returns on equity. This seems to suggest that the industry culture is little changed.
The captains of the industry who were responsible for their roles in the global financial crisis have not been taken to task, as they are shielded by the corporates that paid the fines. "This trade-off between values and legality is a very serious issue and that hinges on values and character. How do we make people personally responsible for their actions?
"It's form without substance, legal but without morals," Mr Lim adds. Favouring morals over laws, substance over form, Mr Lim has over the years personally crafted a set of core values to serve as the guiding compass for his management and staff when they run the business.
PhillipCapital's corporate code stresses the need to uphold integrity in conduct. "Honesty is telling the truth; integrity is fulfilling the truth," the code says.
Asked if cryptocurrencies present a new form of risk for the industry, Mr Lim notes that it is a matter of time that central banks will issue their own virtual currencies, since it is cheaper than printing cash and raises their level of control and access to information. "We are moving towards a cashless society. Even the hawkers and taxis are moving towards cashless."
But the trading of Bitcoin futures poses a tricky situation. Bitcoin - which is a form of decentralised cryptocurrency - is unregulated, but the trading of its futures contracts already started since December last year on the Chicago exchanges CME Group and CBOE Global Markets. This has since set Bitcoin prices on a roller-coaster ride.
"So we legalise the tail, but is the dog also legalised? We legalised the Bitcoin futures; in essence, we also legalise Bitcoins, so we are moving into a grey area."