Parliamentary Replies
Published Date: 19 January 2009

Reply to PQ on Complaints Resolution on the Sale of Structured Products

Question No. 888 in Notice Paper No. 301 of 2008
Question No. 894 in Notice Paper No. 306 of 2008
Question No. 906 in Notice Paper No. 6 of 2009
Question No. 909 in Notice Paper No. 7 of 2009
Question No. 914 in Notice Paper No. 7 of 2009

For Oral Answer

Date: For Parliament Sitting on 19 January 2009

Name and Constituency of Member of Parliament
Q888: Mr Inderjit Singh, MP for Ang Mo Kio GRC
Q894: Mdm Cynthia Phua, MP for Aljunied GRC
Q906: Mr Siew Kum Hong, NMP
Q909: Ms Sylvia Lim, NCMP
Q914: Mr Sin Boon Ann, MP for Tampines GRC

Mr Lim Hng Kiang, Minister for Trade and Industry and Deputy Chairman:
Mr Inderjit Singh: To ask the Senior Minister (a) if he will provide an update on the resolution of complaints concerning the sale of structured products by various banks; (b) whether the banks have satisfactorily concluded their handling of all the complaints and reported the final outcomes to MAS; (c) how many consumers have raised complaints to the Financial Industry Dispute Resolution Centre because they were dissatisfied with the banks’ findings; (d) whether MAS has done any investigations into alleged wrongdoings by financial institutions and what is the outcome of these investigations; and (e) whether MAS has planned any new measures to further protect consumers with regard to the sale of structured products.

Mdm Cynthia Phua: To ask the Senior Minister (a) if he will provide an update on the investigation by MAS in the mis-selling of financial products; (b) what is the cause of the delay in the investigation; (c) what is the redress open to investors if they are not satisfied with the financial institutions’ (FIs) handling of the complaints and the resolution process; (d) how many investors have lodged appeals to the Financial Industry Disputes Resolution Centre to seek compensation for their investments; and (e) how many cases have the FIs made partial or full refund and how many cases are still outstanding.

Mr Siew Kum Hong: To ask the Senior Minister (a) how many complaints over misselling of Lehman Brothers-related structured products have been filed with financial institutions; (b) of these complaints, how many have resulted in (i) investors receiving a full refund (with or without interest) and of these, how many are “vulnerable investors”; (ii) investors receiving a partial refund; (iii) investors not receiving any compensation; (c) how many claims have been filed with Fidrec and of these, how many have been resolved; and (d) if he will provide an update on MAS's investigations into this matter.

Ms Sylvia Lim: To ask the Senior Minister in relation to investors in Lehman-linked structured products who filed their cases with financial institutions or Fidrec (a) how many claims have respectively been upheld, rejected, or still pending; and (b) how many cases of investors who do not fit the age or education profile of "vulnerable investor" have had their claims upheld. 

Mr Sin Boon Ann: To ask the Minister for Finance whether the Government will consider specific legislation to reduce or streamline the current legal complications arising from the recovery of investments linked to Lehman Brothers.

Mr Lim Hng Kiang, Minister for Trade and Industry and Deputy Chairman:

1. Mr Inderjit Singh has asked for an update on the complaints handling process regarding affected structured products, and whether the financial institutions (FIs) involved have resolved all the complaints. Mdm Cynthia Phua, Mr Siew Kum Hong and Ms Sylvia Lim have asked about the outcome of complaints made by investors, which have been reviewed by the FIs involved. Mr Siew and Ms Lim have also asked about the outcome for “vulnerable investors”.

Update on Complaints Handling Process

2. To recap, MAS has set out a three-step dispute resolution process to ensure the fair and impartial handling of complaints by the relevant FIs. A wide range of investors bought these products. There were different FIs involved and the circumstances under which investors made these investments varied. Therefore, each complaint had to be assessed individually on its merits. The FIs’ decisions have been based on an assessment framework developed in consultation with the independent parties appointed by the FIs. Both the Consumer Association of Singapore (CASE) and the Securities Investors Association of Singapore (SIAS) have said that they are supportive of this process and regard it as being in the best interest of investors.

3. This process established by MAS was designed to achieve three main outcomes. First, to ensure there is a consistent and rigorous process for the review of complaints by the FIs. Second, to ensure a fair basis of decision, with the FI and investor taking due responsibility.  Third, that the offers of settlement made to affected investors be regarded as reasonable and credible in the circumstances.  MAS gave an update on 16 January 2009 on the handling and resolution of complaints for DBS High Notes 5, Lehman Minibond Programme Notes and Merrill Lynch Jubilee Series 3 LinkEarner notes.  Looking at the progress made by the FIs and the results of the FIs’ review of complaints, as overseen by the independent persons, I am of the view the process put in place by MAS has achieved these outcomes.

4. In all, the 10 FIs that sold DBS High Notes 5, Lehman Minibond programme notes and Merrill Lynch Jubilee Series 3 LinkEarner notes received 5,381 complaints as at 14 January 2009.  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 from the reviews of complaints to investors.  This could take a few weeks, as FIs intend to communicate with some investors face-to-face.

5. I welcome the support from SIAS and CASE for the three-step dispute resolution process.  They have given useful advice to investors to take a practical and realistic view when considering any offer of settlement they may receive. They have also highlighted to the FIs the importance of handling communications to investors promptly and making sure that investors fully understand the terms of any settlement offer.

6. As a result of the review of individual complaints by FIs, 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. Mr Siew Kum Hong has asked out of the offers of settlement how many are for "vulnerable investors".   While MAS had asked the FIs to pay particular attention to a priority group of complainants based on some general characteristics such as age, education and investment experience, a single characteristic such as age or education alone does not determine if an investor would be vulnerable to being mis-sold the products. For instance, someone with little formal education may be a successful businessman. The person may have prior investment experience or could have invested in structured products jointly with say a younger family member. Nevertheless, all these cases were carefully reviewed by the FIs using the same assessment framework as for all other complaints. The FIs have told MAS that the outcome from the review process for investors who are elderly with little income, low levels of formal education and little investment experience is that most have been offered full or partial settlement. For the few cases among this group who do not receive any offer of settlement, the IPs together with the FIs have informed MAS that they have reviewed these cases and are satisfied that there are good grounds for the FIs’ decisions.

7. Overall, this is a fair result. The process has worked as intended. The FIs have been responsible and co-operative in their overall efforts to ensure a fair resolution for affected investors. The independent parties have acknowledged the FIs’ efforts in ensuring that the process is fair and rigorous, and that investors' interests are upheld. This reflects well on the way the FIs involved have responded to the requests from MAS and to their commitment to upholding fair dealing.

8. Let me provide more details on the settlement offers made by the FIs. For DBS High Notes 5, 8% of complainants will receive offers of full settlement, and 16% will receive offers of partial settlement. For the Lehman Minibond Programme Notes which were sold by banks and one finance company, 34% will receive offers of full settlement and 41% will receive offers of partial settlement; for those sold by stockbroking firms, 1% will receive offers of full settlement and 12% % will receive offers of partial settlement. As for the Merrill Lynch Jubilee Series 3 LinkEarner Notes sold by stockbroking firms, 2% will receive offers of full settlement and 9% of partial settlement. The differences in the settlement figures 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.

9. For Pinnacle Notes Series 9 and 10, it was announced on 14 November 2008 that these notes would be subject to early redemption. I have been informed that the five FIs that sold Pinnacle Notes Series 9 and 10 have received 471 complaints as at 14 January 2009. MAS is in contact with these FIs to ensure that they are handling investors’ complaints according to the serious and impartial process that these FIs have already set up to deal with complaints relating to the Lehman Minibond programme notes and Merrill Lynch Jubilee Series 3 LinkEarner Notes.  Mr Hwang Soo Jin has agreed to oversee the complaints resolution process of the securities brokers for Pinnacle Notes series 9 and 10. The other FI is in the process of appointing an independent person to oversee the complaints handling process for these notes. 

10. Investors who consider they have a genuine claim that they were mis-sold the product or that the product was misrepresented to them should follow the same three-step process to resolve their complaints. Investors should first lodge their complaints directly with the FI that sold them the product. They should then provide full details of their case to the FI to allow the FI to make a fair assessment of their case. Finally, they can choose to accept the decision of the FI or refer their complaint to FIDReC, where a fast-track process has been put in place to deal with such cases.

Cases Referred to FIDReC

11. Mr Singh and Mdm Phua have also asked about the FIDReC process.  Investors who are not satisfied with the outcome of the FIs’ review of their complaint may choose to have their complaint 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 presented, whether in written or oral form. The decision of FIDReC is binding on the FI, but not on the investor. Investors should bear in mind that the outcome from the FIDReC process could be more, or less favourable than the outcome of the FI’s review of the complaint. If an investor is not satisfied with the outcome at FIDReC, he may pursue other options for recourse.

12. As of 14 January 2009, there have been a total of 227 cases received by FIDReC. These cases are a subset of the total number of complaints lodged with the FIs. 55 of these cases relate to the DBS High Notes 5, 136 cases to the Lehman Minibond Programme Notes, 30 cases to the Merrill Lynch Jubilee Series 3 LinkEarner notes and 6 cases to the Morgan Stanley Pinnacle Notes Series 9 and 10. These cases are currently being processed for mediation and where necessary, for adjudication. 2 cases have been successfully mediated thus far. The time taken to resolve any particular complaint would depend on factors such as the complexity of the dispute and when the parties involved are available for meetings or hearings.

MAS' Investigations and Regulatory Actions

13. Mr Singh and Mdm Phua have also asked for an update on investigations by MAS. 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 its investigations MAS identified issues relevant to the FIs’ assessment of individual complaints, MAS has worked with the independent parties overseeing the complaints resolution process to ensure that these were incorporated into the complaints assessment framework.

14. MAS will be communicating its 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 its preliminary findings before making a final decision. Until MAS’ findings are finalised, it would not be 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 Sale and Marketing of Structured Products

15. Mr Inderjit Singh has also enquired whether MAS has planned any new measures with regard to the sale of structured products.

16. MAS had previously announced that it would undertake a review of its regulatory regime in light of recent developments. The review is in progress and MAS will conduct a public consultation on the proposals by mid-March 2009. The review will consider stronger suitability requirements for certain types of products, clearer product labelling, and simpler descriptions of the features and risks of products so that they can be more readily understood. Proposals being considered include enhancing the regulatory regime for advertising and marketing materials, and introducing product summary documents. There are already requirements that the sale of investment products in banks is to be undertaken only by financial advisers who are not to perform any bank counter staff functions.  However, the review will also examine whether any enhancements should be made to ensure there is an even clearer separation between a bank’s traditional deposit-taking business and its investment product sales and marketing activities.

17. Mr Sin Boon Ann has asked whether the Government will consider specific legislation to reduce or streamline the current legal complications arising from the recovery of investments linked to Lehman Brothers. The review being conducted by MAS is also looking into possible measures to address the legal complications that have been noted in relation to the Lehman Minibond programme notes. One proposal being considered is introducing a requirement for the appointment of an approved trustee with prescribed powers for certain investment products such as structured notes.

18. In reviewing its current regulatory and supervisory approach, however, MAS will have to be careful not to come up with overly prescriptive rules which may not serve all investors. MAS' current approach is intended to allow Singaporeans a wider choice of investment options to cater to their diverse needs. MAS is studying the specific refinements that need to be made carefully so that hasty changes are not made, which could bring unintended consequences in the future.

19. 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 and various 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.