Inspections and
Supervisory Reviews
New Legislation
Enhancing Regulatory Frameworks
Market and Business Conduct
Risk Management
  Inspections and Supervisory Reviews 32
BASEL II Implementation  
Box 1 – BASEL II Implementation in Singapore  
Thematic Inspections Relating to Anti-Money
Laundering/Countering Financing of Terrorism
Thematic Inspections on Asset-Liability
and Capital Management for Life Insurers
Box 2 – Monitoring Hedge Funds in Singapore  
Thematic Inspections of Corporate Finance Advisers  
Thematic Inspections on E-trading of Futures Contracts  
Inspections of Fund Management Companies  
Box 3 – Developing and Enforcing Supervisory
Regimes for Real Estate Investment Trust  
Box 4 – Thematic Supervisory Work on Financial Advisers  

Box 4 Thematic Supervisory Work On Financial Advisers

Mystery Shopping

In 2005, MAS embarked on its first mystery shopping survey on practices in the financial advisory industry. The objective of the survey was to assess the quality of the sales and advisory process and not the quality of advice. The survey was conducted from October 2005 to February 2006, and covered 100 representatives from 30 financial advisers (FAs) comprising licensed FAs, banks, insurance companies and capital markets services (CMS) licence holders.

MAS appointed a market research company to recruit mystery shoppers to pose as interested clients seeking advice. The mystery shoppers were asked to approach the FAs based on the following scenarios: either having a lump sum of S$10,000 to invest or a monthly budget of S$300 to purchase an insurance policy for protection of dependents. The mystery shoppers were not required to commit to a purchase.
In developing the survey methodology and questionnaire, MAS sought input from a panel of industry practitioners, academics and consumer representatives.

Overall, the survey revealed that most representatives conduct a basic fact-find before making a recommendation. However, there are gaps in the quality of disclosure and manner in which the reasons for recommendations are documented. The survey also found that FAs generally had better processes for investments as compared to insurance sales.

MAS noted that FAs have over the last few years put in place systems and procedures to provide needs-based advice. However, FAs need to improve on the implementation of these processes and monitor their representatives to meet the standards expected. MAS has shared the findings of the mystery shopping survey with the industry associations and made recommendations to help FAs address the gaps identified.

MAS also launched two new online guides to help consumers understand the products they are buying and the risks involved in these products.

  Thematic Inspection on Switching of Investment Products

In March 2005, MAS conducted a survey of all FAs active in the distribution of investment products to determine the adequacy of controls, processes and procedures in place to address improper switching activities. Between August and October 2005, we conducted a thematic inspection on 23 FAs comprising licensed FAs, banks, insurance companies and CMS licence holders to assess the adequacy of their controls to monitor and deter improper switching and churning activities.

The thematic inspection focused on FAs’ compliance with the Guidelines on Switching of Designated Investment Products (“the Guidelines”) issued under the Financial Advisers Act in October 2004. The Guidelines provide guidance to the FA industry on tackling improper switching and churning activities conducted for the purpose of generating fees and commissions without taking into account the interests of clients.

The thematic inspection showed that most FAs have some front-end monitoring controls. These included warnings to customers on the possible costs and disadvantages associated with switching from one investment product to another, as well as requiring customers to declare if they have been advised by the representative to make a switch. However, the standard of front-end monitoring controls varied across different FAs. Most FAs were found to be weaker in their back-end monitoring controls, such as checking customers’ past transactions.

MAS will be sharing its inspection findings with the individual FAs inspected, and following up actively with the FAs to tighten and enhance procedures where needed. We will also be sharing the consolidated findings of the inspection and good practices observed with the industry and other relevant stakeholders.

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