MAS' Approach in Dealing with Recent Developments Concerning the Sale of Structured Products
Singapore 2 October 2008...MAS today outlined our overall approach in dealing with recent developments concerning the sale of structured products to the public.
2 First, MAS assures investors who have purchased DBS High Notes 5, Lehman Minibonds and Merrill Lynch Jubilee Series 3 LinkEarner Notes that their concerns are our immediate priority. We have put in place a mechanism for the quick and fair resolution of individual customer’s complaints. MAS has identified three well-regarded individuals to review the internal complaints handling and resolution processes of the financial institutions (FIs) concerned to determine whether these processes are independent, fair and transparent. While these independent parties will not be involved in handling individual customer complaints, they will update MAS regularly on the progress of the complaints review. Investors who are not satisfied with the outcome of the FI’s review process may choose to have the complaint referred to FIDReC for mediation or adjudication. MAS has worked with FIDReC to put in place a fast-tracked process for affected investors.
3 Second, MAS will take firm and appropriate regulatory action where there are breaches of law or regulations by the FIs or their representatives. As part of the terms of reference of their appointment, the independent parties will highlight to MAS any shortcoming in the FIs’ processes as well as any issues that require regulatory follow up. However, investors should understand that while regulatory actions are important to deter breaches and uphold the integrity of the system, they do not lead to compensation for investors.
4 Third, while we consider MAS’ current regime for marketing of investment products is fundamentally sound, we will undertake a review in light of recent developments in Singapore and globally.
5 MAS’ approach is to require FIs to properly disclose the product features and risks to investors. This has allowed Singaporeans a wider choice of investment options to cater to their more diverse needs. MAS put in place the necessary infrastructure to support this approach. We introduced the Financial Advisers Act (FAA) in 2002 to regulate the financial advisory process across the financial sector. In 2004, MAS clarified that non-principal guaranteed structured notes issued by banks could not qualify as bank deposits, and should be subject to the prospectus disclosure regime under the Securities and Futures Act as for other securities, and requirements under the FAA as investment products. In addition to the requirements imposed on the industry, we launched the MoneySense national financial education programme in 2003 to enhance the financial literacy of consumers, and empower them to make investment decisions. These changes were consistent with developments in other jurisdictions.
6 However, the current crisis has raised the need for regulators to re-examine aspects of their regulatory and supervisory approach, not just in Singapore but in most jurisdictions. Accordingly, MAS will undertake a review of the marketing and sale of structured products, taking into consideration findings from the complaints handling and resolution process as well as international developments. Some areas we may need to review include stronger suitability requirements for certain types of products, clearer product labeling and risk rating, and simpler descriptions of the features and risks of products so that they can be more readily understood. MAS also recognises that the current concerns about the sale of structured products differ across FIs, relationship managers, products and types of investors. In reviewing our current regulatory and supervisory approach, we must be careful not to swing to the extreme and come up with overly prescriptive rules which may not serve all investors.
7 Fourth, regulation cannot be the only solution. All stakeholders have a role to play. The Board and senior management of FIs must embed a culture of ensuring fair dealing outcomes for customers of their institutions. Consumers must consider investment decisions carefully and understand the risks that they undertake.
8 Heng Swee Keat, Managing Director, MAS, said, "We understand the high level of anxiety that investors in some structured products are feeling. Our immediate focus is on helping investors to get a quick and fair resolution of their complaints. We are committed to seeing that every case is properly looked into. Where there are breaches of regulations by the financial institutions, we will take action. While our current regulatory regime is basically sound, MAS will undertake a review of the sale of certain types of financial products. To help consumers assess their investment options, MoneySense will be stepping up its work on financial education."