Two of the mainstays of Singapore’s hugely successful finance industry – its stock exchange and its role as the pre-eminent private banking hub in the region – both face difficult new realities.
The Singapore Exchange is shrinking, in listing terms, caught in a pincer movement between simultaneous challenges. Almost every blue-chip firm that might be listed has already done so; Temasek, the largest holder of further potential free float, has neither the mandate nor the inclination to sell more.
SGX’s back-up plan – to be the hub upon which regional businesses from Asean and beyond are listed – is threatened by the growing credibility and liquidity of local exchanges from Jakarta to Bangkok, where now companies feel they can stay at home, and by the previous failures of Chinese companies that have come to list in Singapore and left investors penniless.
Meanwhile, Singapore’s private banking model has had to evolve from being a refuge of questionable money sourced from the most unpalatable figures of the Indonesian and Myanmar dictatorships, to one that aspires to the highest levels of know-your-customer and anti-money-laundering rigour. It has largely achieved this over the last 20 years.
But lately its standards have been tested by the fallout from 1MDB, too much of which appears to have passed through Singaporean institutions. The regulator has shown its teeth, banning two small banks outright and levying token fines on two of the biggest names in regional private banking. But there will be more of this and banks are asking themselves hard questions about the economics of a business that requires so much spending on compliance and surveillance.
At the same time, tax amnesties in the countries Singapore most relies on for its influx of funds, in particular Indonesia, reflect a growing wish among other Asian states to keep their riches at home rather than let them sit uncharted in offshore centres.
Singapore has plenty going for it as it seeks to meet these challenges. It has stability, human talent and regulatory sophistication. It has strong banks, a wealthy government and, by and large, a plan.
The biggest thing in Singapore’s favour is that it is built on reinvention. Reinvention is the reason it exists. Other tiny states have risen from nothing to prosperity, but only on the back of hydrocarbon wealth. Singapore arrived at post-war independence as a shattered and invaded island with nothing to mine in the ground and not enough room for agriculture, yet it found a way to be prosperous through efficiency, geography and far-sightedness.
If the people at the very top realize the threats to Singapore’s financial model, history suggests they are in a position to stay ahead. If they don’t, then they won’t.