Singapore 16 January 2009...MAS today provided an update on the resolution of complaints for DBS High Notes 5, Lehman Minibond programme notes and Merrill Lynch Jubilee Series 3 LinkEarner notes, as well as on the progress of MAS’ investigations.

Resolution of Complaints

2   As of 14 January 2009, the 10 financial institutions (FIs) that sold DBS High Notes 5, Lehman Minibond programme notes and Merrill Lynch Jubilee Series 3 LinkEarner notes have received 5,381 complaints: 853 for the DBS High Notes 5, 4,363 for the Lehman Minibond programme notes, and 165 for the Merrill Lynch Jubilee Series 3 LinkEarner notes.  All complaints received on or before 14 December 2008 have been considered by the FIs’ internal review panel, apart from a small number of complainants who have declined to be interviewed and  cases where the FIs are obtaining further information. The FIs are in the process of communicating the outcomes to investors.  This could take a few weeks as FIs intend to communicate with some investors face to face.

3   The total issue size of the Lehman Minibond programme notes was S$508 million, of which S$375 million was sold to about 8,000 retail investors through nine distributors.  For the Merrill Lynch Jubilee Series 3 LinkEarner notes, S$23 million of the total S$28 million notes issued were sold to about 350 investors through six stockbroking firms.  Over 80% of the Lehman Minibond programme and Merrill Lynch Jubilee Series 3 LinkEarner noteholders invested up to S$50,000, with 28% having bought S$10,000 or less.  In the case of DBS High Notes 5, close to 1,400 investors bought S$103 million worth of notes.  More than half of them invested S$50,000 or less. Given the wide range of investors who bought these products, the different FIs involved and the varied circumstances under which investors made these investments, each complaint has to be assessed individually on its merits.  MAS has earlier set out a three-step dispute resolution process to ensure the fair and impartial handling of complaints by the relevant FIs. Both the Consumer Association of Singapore (CASE) and the Securities Investors Association of Singapore (SIAS) are supportive of this process and regard it as being in the best interests of consumers.

4   We also required all the FIs to appoint independent persons (IPs) to oversee the complaints handling and resolution process by the FIs. MAS worked closely with the appointed IPs Gerard Ee, Hwang Soo Jin and Law Song Keng to ensure that the FIs’ processes were serious and impartial. MAS and the IPs have worked with the FIs to put in place a generally consistent assessment framework across complaints and across FIs. The IPs have completed their work.  Essentially, over a three-month period, they reviewed the FIs’ complaints handling processes, provided feedback to MAS on how the FIs have applied the framework across a sample of actual complaints, and gave updates to MAS so that any FI-wide issues identified along the way were incorporated into the assessment. MAS acknowledges the professionalism and dedication of the IPs in carrying out their challenging tasks.

5   Said Gerard Ee, "I have spent the past several months working intensively with DBS on their complaints handling process.  I can say that DBS has in place an independent and effective resolution process.  The staff also laboured over the weekends, devoting their time and energy to make sure that investors' interests are upheld. The bank assessed each case rigorously before arriving at a decision. " 

6   With regard to the six broking companies which operate on a different basis from the banks and finance companies, Hwang Soo Jin stated, ”I am satisfied with the diligence exercised by each of the six stockbroking companies in their effort to ensure that they have in place adequate procedure and systems as well as resources to handle the complaints from their clients. As far as it can be ascertained, I believe that each and every complaint has been handled promptly and fairly." 

7   Law Song Keng said, "ABN Amro, Hong Leong Finance and Maybank had a wide spectrum of investors who bought these products.  I have worked with the FIs to ensure that the assessment framework was properly applied. To ensure that the process is fair and rigorous, the FIs committed many hours to hold one-to-one meetings with the investors to listen to their cases. The FIs maintained their professionalism throughout the process even when they needed to deal with cases involving emotional investors. I am confident that the decisions made by the three FIs have been reached after careful evaluation of the complaints."

8   In each FI, the assessment of the complaints was made by an internal review panel, chaired by its CEO in accordance with the framework agreed with the IP. Based on the cases decided by FIs as of 14 January 2009, 58% of complainants will receive a full or partial settlement. This comprises 25% of complainants receiving full settlement and 33% receiving partial settlement.  Almost all elderly investors with little income, little formal education and little investment experience have been offered full or partial settlement. 

9   The table below provides greater detail of the settlement offers as a percentage of resolved complaints for the three products. The differences reflect the varied target profiles of customers of the different FIs and their different business models. For example, stockbroking firms mostly perform the role of executing transactions on instructions from their customers.

10   The FIs' assessment criteria included whether there was a reasonable basis for recommending the product to the investor, whether the key risks and features of the product were adequately explained and whether proper procedures were adhered to in the advisory and sales process. In deciding the outcome of each complaint, FIs did not rely on any single factor, but took into account a whole range of relevant factors including the investment experience of the investor, degree of reasonable reliance on the advice provided, and the investor’s ability to understand both the product and any documents signed during the sales process. 

11   Shane Tregillis, Deputy Managing Director, Market Conduct, MAS said, "MAS is satisfied that FIs have carefully reviewed the complaints based on principles of fairness without taking strict legal positions. This is reflected in the settlement offers that the FIs are making to the investors."

Referral of Cases to FIDReC

12   Investors who are not satisfied with the outcome of the FIs’ review of their complaint may choose to have their complaints referred to FIDReC. Should an investor decide to refer his case to FIDReC, any offer from the FI will no longer be available to him.  FIDReC will consider the merits of each case, including all relevant evidence (both written and oral) presented. Investors should bear in mind that the outcome from the FIDReC process could be more, or less favourable than the outcome of the FIs’ review. 

13   For complaints relating to banking and capital markets products, which include structured products, FIDReC has jurisdiction to adjudicate disputes up to S$50,000 per claim. This will cover over 80% of Lehman Minibond programme and Merrill Lynch Jubilee Series 3 LinkEarner noteholders and over 50% of DBS High Notes 5 investors.  For claims above S$50,000, FIDReC will be able to adjudicate such claims if either the FI agrees to allow FIDReC to hear the claim or the investor agrees to limit his claim to S$50,000. Most FIs have indicated they will agree to FIDReC adjudicating claims above S$50,000 on a case-by-case basis. A few FIs have agreed to allow FIDReC to adjudicate all claims up to a limit of S$75,000.

Legal issues related to Lehman Minibond Programme Notes

14   The trustee and receivers for the Lehman Minibond Programme notes are working closely with their legal advisers on the best way to defend noteholders' interests in the underlying assets. MAS expects all parties, including the distributors, to do their utmost to safeguard noteholders' legal rights. Given the complexity of the legal issues involved, it is important that the process is thorough and robust. MAS has instructed the Drew & Napier LLC team, led by Senior Counsel Davinder Singh, to also look at all the issues, and work with the legal teams of the trustee, receivers and distributors.

Status of Investigations

15   MAS has announced that it is looking into any FI-wide issues, such as the selling practices and policies within each FI, as part of its formal investigations. The investigations cover, among other matters, the FI’s due diligence into the structured notes, the procedures used at the point of sale, including how the FI ensured that the notes were sold to clients whose investment objectives and risk tolerance matched the risk profile of the notes, and the training and supervision of relationship managers. Where in the course of our investigations we identified issues relevant to the FIs’ assessment of individual complaints, we have worked with the IPs to ensure that these were incorporated into the complaints assessment framework.

16   We will be communicating our preliminary findings to the CEOs of the FIs involved. As part of due process, MAS will give the FIs a reasonable opportunity to respond to the preliminary findings before making a final decision. Until such time as the findings are finalised, it is not appropriate for either MAS or the parties involved to comment further on the matters under investigation as it could be prejudicial to the investigation and the parties involved.

Review of Regulatory Regime & Investor Education

17   We announced earlier that we would undertake a review in light of recent developments.  The review is in progress and we will conduct a public consultation on the proposals by mid-March 2009 and welcome feedback and views from the industry and the public. 

18   Another area where there is more work to be done is in investor education. Much has been achieved through the MoneySENSE programme, with the support of CASE, SIAS, various agencies and financial industry associations. However, these efforts will have to be stepped up. MAS is working with various stakeholder groups, in particular, those representing investors' interests, such as CASE and SIAS, as well as relevant tertiary institutions. 

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