"Embracing Changes, Ready for the Furture"

Introduction

1   Good morning ladies and gentlemen.  It is a pleasure to join you here today.

2   The marketplace for financial advisory services has been changing, with an increasing variety in the types and complexity of products that are being offered to consumers.  The industry and MAS, as the regulator, must embrace change to be ready for the future. 

3   MAS recently spelt out its regulatory philosophy in a monograph "Objectives and Principles of Financial Supervision in Singapore".  An underlying theme of this monograph is that creating a sound and progressive financial services sector in Singapore is a shared responsibility.  The monograph sets out MAS' focus on increased disclosure and improved business conduct standards to ensure fair dealing by financial institutions.  It also reinforces the importance MAS places on greater consumer self-reliance.  The success of this approach relies on the efforts of all stakeholders: industry participants and their professional associations, such as IFPAS, consumers and MAS. 

4   In my speech today, I will highlight four areas I believe the industry and MAS can and should change, to be "ready for the future". 

• First, business conduct standards of financial advisers ("FAs") and their representatives can be enhanced.  As investment products become more complex and consumers become more sophisticated, consumers will be looking for higher quality financial advisory service.  Higher standards of business conduct are important to maintain consumers' confidence in the industry.  This is not only sensible regulation, it is also good for business.
• Second, industry participants and MAS need to work hand-in-hand in consumer education.  In order for the disclosure-based regime that we have put in place to work, we need customers who are well-informed and can take ultimate responsibility for their financial decisions. 
• Third, regulation needs to be responsive to remain relevant and business-friendly in the face of change.  On this front, MAS is amending the Financial Advisers Act (FAA) and the Securities and Futures Act (SFA) later this year.  Feedback from the public consultation conducted in November last year has been considered in our policy deliberations.  A draft Financial Advisers (Amendment) Bill was published for public consultation on 22 April 2004. 
• Fourth, the industry should explore the benefits of convergence in the industry.  With the recent changes in the regulatory environment, the FA industry should consider the synergies and benefits that could be reaped from greater collaboration among the various industry associations.

Business Conduct Standards

Compliance with Regulations

5   As part of MAS' ongoing supervision of financial institutions, we have recently been conducting inspections of participants in the FA industry.  Although the institutions that we have inspected to date have taken steps to put in place procedures to comply with the FAA, there is still room for improvement.  We have highlighted these areas to the FAs involved and they will need to remedy the concerns noted.  The inspections undertaken have also brought to our attention some good practices that individual entities have put in place.  MAS is working on a practice note that will highlight some of these good practices for the benefit of the industry as a whole.

Remuneration - Structure and Disclosure

6   Another aspect of business conduct worth highlighting is the structure and disclosure of FAs' remuneration.  Current remuneration structures of FAs are still largely geared to meeting quantitative sales targets.  This may encourage FA representatives to focus on product sales rather than on the quality of their financial advice.  The relationship between an FA and its clients is grounded on trust and confidence.  A key underpinning is that the FA must provide advice that meets the needs of the client.  Rather than structuring remuneration solely on the basis of sales targets or quotas, I suggest that FAs consider remuneration structures that reward the building of longer-term relationships with clients, the giving of good advice and compliance with the FAA. 

7   Disclosure of remuneration can also be improved.  Consumers need to be informed of how an FA is being remunerated, for instance, whether this is commission or fee-based.  This will help consumers assess the cost of investment advice and whether there is any potential bias in the advice given.

Consumer Education

8   As products become more complex, consumers need to be more knowledgeable, to know what questions to ask and how to use the information received.  This will also benefit FAs and their representatives, as it will help prevent miscommunication and misunderstanding.

9   To address these issues, the MoneySENSE national financial education programme was launched in October last year.  It brings together industry and public sector initiatives in financial education for a long-term, sustainable programme to enhance the basic financial literacy of consumers.  

10   The MoneySENSE programme adopts a three-tiered approach.  It focuses on basic money management at the lowest tier, then looks at financial planning at the next tier before moving on to the last tier on investment know-how.  This three-tiered approach is important as financial education must build on strong foundations in basic money management and financial planning, before discussing specific investment products. 

11   Since its launch, MoneySENSE has supported a wide variety of programmes including a series of interactive skits on money management held at community centres, libraries and schools, a free grassroots seminar on life insurance, an interactive financial board game for students and a series of consumers' guides on life and health insurance, credit cards, car financing, dispute resolution and the FAA.  Some of the upcoming activities include a series of workshops targeted at low-income families, retirees and married couples.  MoneySENSE will also be conducting a nation-wide survey to benchmark current financial literacy among Singaporeans.

12   I am pleased to note that IFPAS, with two other financial planning associations - the Association of Financial Advisers, or AFA, and the Financial Planning Association of Singapore, or FPAS - will be organising a series of money management and financial planning talks at grassroots venues starting next month. 

13   Financial education is a shared responsibility of the public sector, the financial industry and consumers.  With direct interface with consumers, FAs are instrumental in helping consumers make sense of the financial products offered in the market and plan for their lifelong financial security.  I welcome IFPAS' support of the MoneySENSE initiative, and look forward to working with IFPAS on more collaborative MoneySENSE projects.

Regulatory Developments

14   The third area of change is regulation.  Just as the industry needs to change to keep up with the demands of the market, MAS, as the regulator, must be willing to modify its regulations to continue to be business-friendly, while still working to ensure that standards are upheld to promote fair dealing for consumers.  Let me touch briefly on some of the key upcoming changes. 

Product Scope of FAA - Structured Deposits

15   We have seen a variety of structured deposits in the market.   Plain vanilla deposits currently fall outside the scope of the FAA, as they are subject to strict prudential requirements imposed on banks and are generally simple and well understood.  Structured deposits are more complex, as they bear many characteristics of an investment product.  The regulatory treatment of such products should be calibrated to recognise the associated risks.  MAS will be issuing guidelines for the sales and advisory process for such structured deposits. 

Generally Circulated Advice

16   MAS recognises that there may be instances where the advice provided by an FA is not targeted to meet the needs and circumstances of specific individuals.  MAS will exclude such generally circulated advice (which we had referred to as "untargeted advice" in the public consultation last year) from the "know your client" and suitability requirements under the FAA, if it meets the criteria to be set out by MAS. 

Non-Retail Investors

17   MAS will also be streamlining the classifications of retail and non-retail investors.  This will reduce the categories of non-retail investors and will be simpler for service providers and more business-friendly. There will be three categories of non-retail investors: accredited investors, institutional investors and expert investors. 

Convergence in the FA Industry

18   Finally, I turn to convergence in the FA industry.  The passing of the FAA in 2001 represented a change in the regulatory environment for the FA industry.  The FAA brings together in a single Act the disparate pieces of legislation that the FA industry was previously regulated under.  While the FA industry is now regulated under one piece of legislation, there remain a number of industry associations representing different interest segments and pursuing different standards and programmes.  I consider that there could be clear synergies to be achieved from closer collaboration, and possible integration, of the various FA industry associations.  This could help ensure that all practitioners in the FA industry abide by the same high standards and commitments, instilling greater confidence in our FAs and benefiting the industry as a whole.  The various associations have worked well together in their support of MoneySENSE and I hope they will leverage on this for continued collaboration, and even in time, possible integration.

19   Another area for potential convergence is an affordable and independent industry-based mechanism for resolving disputes between consumers and their financial institutions.  Dispute resolution mechanisms are in place for the banking and insurance sectors.  A Capital Markets Working Group that included representatives from securities firms, financial advisers and fund managers was set up last year to consider the best way to plug the gap in the availability of a similar mechanism for the capital markets.  The Working Group has in recent months approached the banking industry's Consumer Mediation Unit (CMU) and the insurance industry's Insurance Disputes Resolution Organisation (IDRO) to discuss the possibility of setting up an integrated dispute resolution mechanism.  MAS has been facilitating ongoing discussions between the various stakeholders.

20   Apart from the cost savings to institutions through economies of scale, an integrated scheme would benefit consumers by providing them with the convenience of a one-stop shop, and ensure that consistent processes and procedures are applied across all sectors.  Such consistency is especially needed in sophisticated financial markets where product boundaries have become blurred.  Convergence in this area may take some time, as the concerns of various industry sectors will need to be carefully considered, but it is good that these initial discussions have begun.

Conclusion

21   The current improved economic conditions set a positive tone for the FA industry in the year ahead.  The industry must constantly look to its practices and processes to stay ahead in the game.  For our part, MAS will constantly monitor market developments so that the rules of the game remain relevant and conducive to business operations.