Fund Director Masterclass: Fiduciary Duties & Good Governance in 2025 | InCorp SG

Good governance starts with informed and responsible directors. As regulations evolve, understanding fiduciary duties and strengthening board accountability are key to protecting both investors and organisations. In this video, we discuss practical guidance to help you strengthen oversight, transparency, and accountability at the board level. Featuring insights from Yonn Yong, Director at Harneys Fiduciary.   / yonn-yong-960a3b13 

Hosted by Yie Ying Tan (Wynne), Head of Private Client and Family Office at InCorp Singapore (An Ascentium Company), and moderated by Bob Low from the Asian Century Podcast, this informative webinar podcast will help you learn how to strengthen board oversight, avoid governance pitfalls, and build long-term investor trust.
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Transcript

0:00

For all directors, the main duty is to discharge their fiduciary duty towards the stakeholder. From this perspective, that's the reason that MAS expect the managers to adhere to what they put in the documents. And that probably is the reason on why MAS decided to take action. This time around we will be looking into three real life cases. Foreign. This is the Asian Century. So for this series. In the previous episode we talked about building up your fund platform in Singapore. We dive into the tax incentives and regulatory insights in Singapore. Today's topic is Fiduciary

Duties Explained: 0:49

A Compliance Guide for Fund Directors. And here with me again, is Ying who is the family and fund services from Incorp Singapore. Ying, welcome. Thanks Bob. Great to be back doing this with you again. This time around we will be looking into three real-life cases. The first one, a real estate investment trust, the second one a self dealing scenario. And the third one will be a crypto hedge fund. Now we will break down what fund directors need to know to stay ahead of risks and fulfill their responsibility, including looking into what is the most common pitfall that leads to governance breakdown, the warning signs that the director should be looking out for, how to strengthen board oversight and decision making and the steps to build long term investor trust and confidence. This episode is a joint effort between InCorp Singapore and Harneys Fiduciary Singapore and they are both part of Ascentium group of companies and there's really no one better to unpack today's topic with us, than Yonn. Yonn heads up Harneys Fiduciary Singapore and has extensive experience serving as independent directors. Yonn, how about you introduce yourself and what Harneys Fiduciary do? Well, thanks Ying and thanks Bob for having me today. I'm happy to be here to talk about Harneys Fiduciary and myself. Harneys Fiduciary has been in this fund space for more than 50 years. In fact 51 years to count. Exactly. We are familiar with setting up fund structures and providing fund solutions from the perspective from incorporation to maintenance for all of our clients. And myself, I've been a fund director coming to a decade and I'm appointed to funds to help them on their ongoing compliance requirements and also regulatory filing purposes. And at the same time I monitor from the fund perspective on what are the providers doing for the funds. And also I've been asked to sit in through the Q and A sessions with potential investors when they are keen to know about the funds that I've been appointed to. By the end of today's discussion, you will have a clear roadmap To strengthen governance and safeguard both the funds fund and its stakeholder. Well, shall we get started? Yes. And also thank you for watching us live. If you have any questions, please put it into the Zoom chat. Alright, so let's open up. So we have Yong here with us. So let's open up with the first question. Right. Why are fiduciary duties such a critical topic for fund directors today? Thank you for having me. Today. In today's climate, there has been an increasing regulatory expectation and and a tightening scrutiny on each of the board and class that the current media that is publicizing all information on whatever that the board is doing. So that probably is the reason why people are putting more emphasis on, what other directors are doing to discharge their duty than before. Thank you. Yonn. So today we have three case studies with us here today. First case study we'll talk about is the Eagle Hospitality Trust. So it's a Singapore listed REIT that collapsed just a year after its IPO. MAS discovered the REIT manager failed to meet basic regulatory requirements. Six directors were arrested for suspected securities and futures act breaches. And MAS took an unprecedented step of removing the REIT manager to protect its unitholders. So with this case, we start off with the first question. All right. So this case is unprecedented. What does this case reveal about the expectations of regulators have for fund directors and also their boards? Well, as in this case, that was, publicized and highlighted and you rarely see that MAS will impose any harsh penalties on the management. But in this case, this is really an exception. But having said that, you can expect that MAS will impose tightened scrutinies on the board. And this will be a case to start off with. To begin with, why does MAS resign all the managers on board? Well, in Eagle's case, and especially when it's listed, you would naturally expect policies to already be in place in order to be listed. And it appears that the manager on this entity, even as much as they have the policy in place, it does not seem that they have followed through what was included in policy. Or at least that's what the papers are saying. So. So from this perspective, that's the reason that MAS expect the managers to adhere to what they put in the documents. And that probably is the reason on why MAS decided to take action. So looking back, Yong, what were some of the key warning signs or governance gaps that we need to take note of that allow these failures to go Undetected until it's too late. Well, in terms of the policy that was already in place, other than following through the policy regularly, which then is able to allow the, audit committee or the checks and balance to identify gaps that could already start appearing, that will be one of the first signs that the committee or the board should be looking for. And that being one of the sign will help to indicate where are, the gaps that needs to be filled up, in order to complete the reporting or adhere to the policy that was put in place. So that should be one of the first signs that the company or the board should look into internally to fill up the gaps in order for them to be listed on top of what is in place. It is also important to have an, ongoing monitoring process where the boards and the senior management could identify what is needed to be filling up on the gaps. That should be one of the early signs that appear. So yon, I mean, if you were advising, Reid's board today, which we know you have a lot of experience in this area, what are, the practical steps or oversight mechanism, that you will recommend to help prevent another collapse like Eagle Hospitality Trust? I think it is important to set up a separate and independent committee to oversee what has been put in place and also to oversee what are the operational risks that could come with the fund. Naturally, to set up a committee that is totally independent, that will come with a cost consideration, and that is one important fundamental consideration when an entity decides to go listed. That will be one of the fundamental department that I think a REIT should set up to monitor its board as well as the processes on an ongoing basis. Of course, when it is not a listed entity, or that is any entity that collectively collects investment, which we usually term it as a fund, a simple checklist, but with an ongoing monitoring processes on that checklist is advisable to be put in place. Naturally, we will not expect an, unlisted entity to have a comprehensive or as comprehensive as a checklist of a listed entity would have. But it is the ongoing monitoring that is recommended on the checklist, even though it may be a simplified version of what it is. All right, so we move on to the second case, which is Sanwayye. So San Ye was a director and fund manager at OneAsia Investment Partners. So what happened was he manipulated trades between two funds under his control. He sold bonds from one fund to another at low prices, then sold them at higher market rates. So he benefited from causing losses to investors. So mas prosecuted the case, securing Singapore's first criminal conviction for fraudulent OTC bond trading, with sun sentenced to six months in jail. So this Sun Weiya case demonstrated how self dealing can cause significant harms to the investors and call for regulatory interventions. So Yuan, can you share why conflict of interest are regarded as one of the most serious breach of fiduciary duties for fund directors. For all directors, the main duty is to discharge their fiduciary duty towards the stakeholder, that is the unitholder in this case. So for conflict of interest, it is expected that each director would have to have that declared on set before any major decision is made. And coming to what San has done, it has indicated an erosion of objectivity in the actions that he has performed and that will undermine all the trust that the unitholder place on the directors, which all directors are deemed to have. So this is a historic conviction. What, what message does this send to fund directors and also managers about their personal accountability? Well, all directors who act for and on behalf of the entity are indemnified against actual fraud, willful default and gross negligence. So in this particular case, San has committed actual fraud. He has fraudulently tried to buy law for his first fund and sell it at a higher price after his second fund acquire it at a profit for personal liability. Unless it is an actual fraud, gross negligence and willful default that has been committed. Otherwise the directors are generally protected and indemnified against all other acts. Well, having said that, as much as that directors are indemnified against most of other acts that are not committed by them, each of the director does carry personal liability to the ex odd for and on behalf of the entity they are acting for. So from a governance perspective, what is a best practice to detect and prevent self dealing? Especially in the structure where trade and investment decision could be quite complex. We always recommend to have an independent party in the board so that the board or that the independent party in the board can counter check on whether if the declaration on the conflict of interest has been made accurately when such checks are performed, it lowers the risk of the person that is trying to benefit at the expense of the unitholder. And in Sun's case, it sends a strong message that while the directors are usually indemnified when acting in good faith, but once they cross into actual fraud, they will also lose that protection. And it is important to remind that all directors that they carry personal liability for all the acts that they act for and on behalf of that entity. Okay, we move on to the third case on the Three Arrows capital case. So three Arrows Capital was a Singapore based crypto hedge fund and they grew rapidly before collapsing in 2022, leaving over US$3 billion in unpaid debts. MAS later found that the founders misled regulators, exceeded license AUM limits and failed to implement proper risk management. The founders received nine year prohibition orders barring them from any future regulated financial activities in Singapore. So Three Arrows Capitals was wants a very high profile funds before its collapse. So what are the fiduciary lessons can traditional fund directors learn from its failure even though they may not be operating in that space? To first answer your question, crypto investment in how we view that is another type of investment which is the same as the traditional ones such as real estate and equities and bonds. On the lessons that we can learn from Three Arrows, it appears according to the public record that Three Arrows does have a very comprehensive plan on the types of investment to be made and also the timeline and when will the investment be realized. And it does appear that after what Three Arrows has planned in their documents, most of the objective has not been obtained or has not been followed through. In other words, Three Arrows has not been transparent to its investors on its plan on the usage of its investment. And we can't emphasize enough and advise the directors why it is necessary to follow through what was indicated in the fund documents because it actually guides and it actually tell the investor to how you are going to use the investment and nothing should be deviating from what was already written down in the funds document. And we always encouraged all the funds managers to be transparent about what they have provided for in the funds document and follow that through. So MAS imposed these severe penalties to the founders. How does this highlight the importance of transparency and also the accuracy of reporting? I think MAS is coming from the perspective for all entities, especially when they are listed to be transparent in all their communication to their investor. That could mean that any changes that has been made to the usage of the investment or the funds that has been collectively collected should always be informing the investor on what would be the use of the funds. So being transparent is that we encourage all the entities to update, to inform and update their shareholders regularly. And even when there is a small minor change that has been made to the investment objective and that is also important to maintain an open communication with the regulatories and that will help to maintain trust within the regulatory, the stakeholder and the entity, which is a fundamental basis of, for the entity to move on. So a responsible and experienced director should always be able to determine what are the relevant Material information to announce and to inform the public the various regulatory and from that we look into each of the director's experience to deal with the different scenarios that can occur within an entity. Thanks Yon. As fund manager increasingly explore new asset classes like crypto, how should fiduciary oversights and ML practices evolve to manage these emerging risks? Well, and with the new asset class such as crypto that are emerging these days. So we always encourage the investor to be knowledgeable about the asset class that you are going to invest in. We always encourage them to read up and also be aware of the market climate on the type of assets that you are going to invest in. And from a director's perspective, it is important to understand the valuation methodology of that particular asset class And not only applying to crypto, but also to all the other traditional asset class or similarly part of the AML processes for a new asset class like crypto should be delegated to the experienced market providers to determine its value in order to provide an accurate market valuation on the asset that they invest in. In a nutshell, it is important to have directors that are familiar with the ecosystem. And in the example that you have quoted, which is the crypto asset, and in this space itself, it has already developed an ecosystem to be able to accurately identify device when it comes to the AML Perspective and also the value of each of the types of cryptocurrency that is available right now in the market. So that is important to get a relevant and experienced director to be appointed to the crypto board to provide their independence, judgment and view on each of the decision that's made. Thanks John. So looking across these three cases, right. So what are the common patterns of failure when fiduciary duties are breached? We see a lot of gaps in the lack of preparation and not being transparent to its investor. In all of these three cases, which are the fundamental basis for a director to discharge his duty, we would definitely recommend to have independent directors on board that can quickly close off this gap whenever they notice or they see signs on the red flags. At the same time we also see that these three entities, after that they have become established. The directors on board seems to be arrogant and complacent. One of the ways or, one of the signs that has pointed to that behavior is that they have repeatedly used the same providers over the years. It is recommended that you have a regular monitoring on these providers to ensure what they are providing to the entities are informed and also comprehensive. Thank you Yong. So how can fund directors build a, culture of compliance and integrity within their, organizations beyond simply checking those regulatory boxes? Well, you have to build it together. You have to have built it together with the directors and the management. I mean, other than checking the boxes on the checklist where then the policies and procedures are already in place, you need regular and open communication that checks off this checklist and also at the same time fill up the gaps on what the checklist is unable to cover. And we will strongly encourage the board to do a regular check in with the management team on, what is lacking and what can be done to improve and further better the situation. And as the director, we always encourage the management team together with the directors, to cultivate a culture where there is an open communication for them to talk about the red flags and what are the operation issues that they should take care of. So Yeo, we know you have been doing this for close to a decade. And if you were to advise new fund directors who are stepping into their roles today, what is the single most important fiduciary principle they should always, always keep front of mind? Well, as part of the fiduciary duty, it is very important for the new directors to be honest and hard working in discharging their duties. And when it comes to hard working, we defined it in our scope to review the processes regularly, be it in the form of checklists or be in the form of fund documents, to make sure the actions or the decisions that the entity made is in accordance to what has been written down. So we always encourage the new fund directors to take on this very active role rather than just having their name on the board. And on top of that, we always encourage the new fund directors to have open communication with the management team to check in regularly on the other providers on what is lacking and what should be improved. While we also encourage a, new director to stay vigilant and stay curious and be very objective in the decisions when they are making for and on behalf on the entity. That will be the fundamental that we are looking for or we encourage the new directors to have when they are newly appointed to any boards. Thank you, Yong. So for those watching us live, thank you so much for your questions. So we have a few questions that we can get to. So the first question is actually from Alan. Right. So Alan asks, so for the San Maya case, how can we be confident that the board has, strong enough controls to prevent conflicts like this? In San's case, the issue was that the declaration of conflict was never disclosed. But having said that when you have an independent body in the board, that the independent body or that the independent person, usually a director can look into why that transaction was made in that manner. Usually in all selling and buying of investment, we look into what are the three bids and ask prices on when the transaction is done. But in son's case, he being the director, nobody has actually had that oversight to monitor what he was doing. In the absence of an independent person and also in this son's case, in the absence of a declaration of conflict, this scope and role can also be delegated to an independent third party who can access whether if the transaction has been made fairly. Usually in such cases we see the providers obtaining three bids or ask prices to carry out the transaction. That can determine the fairness of this. Thank you Yong. So we have another audience question. This is a question from Jack. So he asked, in your opinion, what is the biggest challenge for fund directors? Is it governance compliance or emerging risks like crypto? I think it's difficult to identify any single element that is the most important in today's climate. But if I were to choose, I think compliance is becoming an increasing topic especially for an asset class like crypto. Because for crypto investment it has blurred the boundaries between international investment and also the ultimate beneficial owner where it is not as clearly identified as in the traditional asset class that we see. As a result, we encourage all directors to pay close attention to the regulatory framework and also ensure that the compliance requirement is, is adhered to in the particular asset class that they invest in. Thank you Yong. So we talked about the three cases today. So if you were fund board, what would be your first step to build investor trust? Well I will first do it through various approaches. So the first thing I will instill in the culture will be to having open communication between the stakeholder that includes sending emails and notices to all the changes that has been made on behalf of the entity. And at the same time I will also engage with the investor to allow Q and a session for them to ask questions or if they need regular updates on the entity or if they have any queries about what is the plan of the entity. Moving on. I will have these two cultures clearly instilled in the entity when I'm appointed to the fund. And I believe that openness forms the foundation for the investors trust in the long run. So today we explore why fiduciary duties are at the heart of fund governance and how breaches of these duties can lead to devastating consequences from investor losses to regulatory intervention. So these are what I've learned. Strong oversight and transparency are non negotiable and conflict of interest, if left unchecked, will erode trust and harm investors. Now, new asset classes such as crypto may bring new risk, but the fundamentals remain unchanged. And those are integrity, accountability and exercise good judgment. And sometimes you need to bring in independent third party such as independent director to help you to make that judgment. And last but not least, great directors don't wait for problems to happen. They are proactive, they ask tough questions, they spot early warning signs and ensure decisions are always made in the best interest of the fund and its stakeholders. So at the end of the day, being a fund director isn't about checking the compliance boxes, but it's about stewardship and trust. Because when the directors lead with integrity, it protects the investors and protects Singapore as being the world class financial hub. Thank you Ying and thank you for watching. Thank you for your questions as well. If you have any further questions, please contact Incorp Singapore and I'll see you at the next one.