1   Good afternoon.

2   I am very happy to join you today at the Life Insurance Association (LIA)'s annual luncheon.  This event marks another year in LIA's efforts to promote the development of the life insurance industry in Singapore and to raise market conduct standards in the interest of all policyholders.

Life Insurance Association in 2006

3   I would first like to congratulate life insurers for the industry's robust growth in 2006. According to your media release on 9 February 2007, the industry's total weighted new business premiums increased by 20 per cent this year. 

4   This healthy performance is expected to continue, helped along in the coming years by:

• the rising affluence of Singaporeans amidst a strong economy,
• an expanding array of new investment products being made available to consumers,
• an ageing population, and 
• a relatively low penetration rate for investment products in Singapore.

5   Secondly, I commend LIA for its initiatives over the past year to raise overall standards in the financial advisory industry. These include the LIA Consumer Survey 2006 on consumers' attitudes towards life insurance and financial advisory services and support for the MoneySENSE programme.

6   I would also like to give special mention to LIA's efforts in working with the other industry associations on the standardized reference check form to help ensure that representatives are fit and proper.

7   I encourage LIA to continue its efforts to enhance the professionalism and competence of local insurance practitioners and urge all relevant industry associations to work together in this task. 

Developments in the financial advisory industry

8   It is nearly 5 years since the introduction of the Financial Advisers Act ["FAA"] in 2002. So it is useful to briefly recap some of our recent initiatives, take stock of how the industry has progressed in the advisory and sales process, and to consider where to go from here.

9   In recent years, we have fine-tuned the regulatory regime in response to industry feedback. As you will be aware, one current major change we are introducing is the new Representative Notification Framework. This seeks to level the playing field between licensed and exempt representatives, and make the authorisation process more efficient.

10   Besides enhancing the regulatory framework, we have continued our supervisory efforts to promote good market conduct standards among financial institutions.

11   Some recent supervisory efforts include:

• the mystery shopping survey of 100 representatives across the banking, insurance and capital markets sectors to assess the quality of the advisory and sales process;
• the thematic inspection of 23 financial institutions to assess the adequacy of their systems and controls to monitor and deter improper switching and churning; and
• the survey of all financial advisers to review the adequacy and effectiveness of their controls in handling clients' moneys.

12   From our supervisory work and other forms of interaction with the industry, we have seen some good progress in processes and procedures being put in place by many financial institutions.

13   However, despite these concerted efforts over the last few years, there remains room for improvement. We continue to receive complaints on inappropriate advice, product pushing and poor customer service. 

14   In thinking about this issue, I sometimes wonder whether as regulators we are treating the symptoms and not the causes of misconduct in much of our supervisory work. One reason this may be the case is that many financial institutions focus only on compliance with a set of detailed rules and requirements rather than seeing good market conduct practices as part of the way they do business.   This needs to change.

15   Therefore, if there is one point I hope you will take away from my talk today, it is this -- increasingly, MAS will be looking to the Board and Senior Management to take responsibility for ensuring that they embed good consumer outcomes in all their business practices. Our thinking on this is very much a work-in-progress. But let me share some very preliminary thoughts with you.

16   Why a focus on the Board and Senior Management being responsible for good consumer outcomes?

17   Let me give you three key reasons.

18   First, no matter how hard we try, we will not fully succeed in achieving good standards of market conduct unless they are embedded in the very culture of financial institutions - that is, the way in which all your staff conduct their day-to-day business.

19   Second, I am sure most consumers do not read the text of the FAA and our various guidelines.  What they care about is their experience and the outcomes from interacting with financial institutions.

20   Third, for MAS and other stakeholders, in order to know whether all our efforts have made a difference to the standards in the industry, we also need to have a clear focus on the outcomes we expect to achieve.

21   Let me turn to the first of these reasons.   I contend that we will only have limited success in lifting standards in the industry as long as good standards of conduct by your representatives are seen primarily as a matter of compliance with detailed regulatory rules and requirements set by MAS under the FAA.

22   With this mindset, the responsibility for market conduct standards is seen as a job for the compliance department, which in turn sees its role as making sure the business units comply with the regulator's "rules".  This is not to say Senior Management is indifferent to compliance issues.  

23   After all, the bane of any Senior Management team is to be on the receiving end of a public sanction from MAS for regulatory lapses. 

24   But the mindset should be less about the negative outcomes of avoiding regulatory action and more about the positive outcomes for consumers and the business. Otherwise, compliance can become too rules based and often divorced from, or even seen as a burden on, key business operations.

25   Therefore, I consider it is important to switch to a focus on achieving more positive consumer and business outcomes with strong management commitment. Hence, instead of ever more detailed rules to deal with emerging situations, regulators are increasingly placing more onus on the Board and Senior Management to deliver good regulatory outcomes in ways that best fit the size and complexity of their business. 

26   This is similar to the trend that we have seen in prudential supervision. In recent years prudential supervisors have begun moving away from detailed rules and increasingly the main focus of their supervisory attention is on assessing the quality of the Board and Senior Management in managing the risks that they face, given the size, scale and complexity of their business.  MAS' own risk management guidelines issued in February 2006 is an example of this emerging approach.

27   I suggest we now need to think in a similar way about the responsibilities of the Board and Senior Management to deliver good market conduct standards.

28   What then do we mean in practical terms by the Board and Senior Management taking responsibility? 

29   Fundamentally, we expect the Board to set the overall direction on market conduct policies and their implementation, and for Senior Management to be responsible for ensuring that these measures are in place.  That is, the Board and Senior Management should set the overall culture of the organization so that all its processes are focused clearly on achieving good outcomes for consumers.

30   For example, you may have read recently about one Board Chairman who took the trouble to read and follow up on consumer complaints that came to his attention.  This is a good example of creating a culture where consumer outcomes matter.

31   We also have seen some financial institutions introduce a balanced scorecard approach in designing their representatives' remuneration package to take into account factors such as client retention, complaints, compliance records, proportion of full fact finds conducted, and competency assessments. This is because they recognize that a heavily commission-driven remuneration structure can create risks of product pushing and aggressive selling.

32   On training of representatives, too often financial institutions institute cursory training programs just to satisfy the legal requirements under the FAA.  Instead, continuing training should be considered as critical to good business and meeting consumers' changing needs. In this light, I am pleased to see that at least one financial institution has established an academy-like training structure to provide quality, continuing training for its representatives.

Consumers' focus on outcomes, not legislation

33   I have been talking about standards in the financial advisory industry.  Let me pause and ask why we are doing this, and what we are seeking to achieve?

34   Consumers care about outcomes in their dealings with financial institutions, and not about the specific legislative requirements in the FAA.   If you ask any consumer what they want, I suspect they will tell you something along the following lines.

35   First, they want to deal with financial institutions where they are confident that the firms put the interests of their customers first.

36   Second, they want to deal with financial institutions who offer products and services that suit the general profile of the consumer segments to which they are targeted.

37   Third, consumers want to deal with competent representatives who provide advice that meets their financial objectives and that suits their personal situation.

38   Fourth, they want to receive relevant and timely information on the products or services in simple and easy to understand language. They do not want to be overwhelmed by jargon.

39   Fifth, if consumers do have problems, they want their financial institutions to handle their problems promptly and equitably.

40   No doubt, a few consumers also want to pay as little as possible for investment products that give exceptional returns or pay next to nothing for lifetime insurance cover. However, consumers also have responsibilities. They need to understand the basics of investments and financial products, for example, that higher return involves higher risk.  They need to understand that in the financial market, there is no free lunch.  I am sure that most consumers understand this and just want good value and a fair deal.

41 At the end of the day, it is these broad outcomes that shape consumers' experience in their dealings with financial institutions. 

MAS supervisory activities also focus on outcomes

42   These outcomes matter to MAS. Our legislative rules focus largely on the processes and procedures that financial institutions need to put in place. Strong systems and processes go a long way to help achieve our regulatory objectives. But as market conduct regulators, we do not want to lose sight of the consumer outcomes these regulatory rules were designed to achieve.

43   Accordingly, we will need to consider how we can use our supervisory work to better assess whether the activities of financial institutions translate into practical outcomes for consumers. Some of the regulatory tools we will continue to use will include thematic inspections, surveys of financial institutions and consumers, company visits, interviews with Senior Management as well as mystery shopping. We will also take enforcement action when we find complete disregard for the rules.

44   Upon completion of major thematic reviews, MAS intends to issue reports to share our findings and recommendations on how the industry can make improvements.  We will examine how we can enhance this process and whether there are ways we can recognize institutions who have done things well.  For example, where we see a good practice, should we name the relevant institutions so that they get some recognition for the efforts they have put in?

45   When the time comes for MAS and the industry to submit our joint report card, the real test of the efforts by MAS, industry associations and other stakeholders in raising market conduct standards is whether we have made a difference to these outcomes for consumers.

Conclusion

46   Let me return to my key theme.  That is, going forward in our market conduct supervision, MAS will look at how best we can assess whether the Board and Senior Management is delivering good consumer outcomes as an integral part of its business operations and strategy.  This will parallel our focus in MAS' prudential supervision on how well the Board and Senior Management are managing the risks of the financial institution.

47   We are keen to engage with the industry on what practical initiatives might help move us all in this direction. The starting point will be to articulate the outcomes retail consumers should be able to expect from all their dealings with financial institutions in Singapore.  Although we expect most of these outcomes to be self evident and commonsense, we propose doing some further work in this area, including some survey testing with consumers.  We would be interested in your views.

48   When I think about how I would summarize the thrust of these good consumer outcomes, it is best captured by a phrase I read in a recent industry report on the approach being adopted by leading global players - Putting Customer Needs First.  After all, this is what financial institutions say they do as a matter of good business.  

49   However, whether the better phrase is "Fair Dealing",   "Treating Customers Fairly" as used by the UK Financial Services Authority ,   "Putting the Interests of Consumers First", or just setting out the outcomes we expect without any overarching label are issues we can explore in more detail on other occasions as our thinking progresses,  including in our regular industry dialogues. 

50   Whatever label we use, our main focus should be on transforming the way financial institutions implement market conduct standards to achieve positive outcomes for consumers. We need to change from a rules-based compliance-led approach to one where the Board and Senior Management take greater responsibility for embedding good market conduct practices into their organisational culture, and they do so on the basis they consider this will be good for their business.

51   I look forward to working with all of you in making this transformation over the next few years.

52   Thank you for your attention and I wish you all the best for the remainder of 2007.