Enforcement Actions
Published Date: 15 June 2021

MAS Reprimands AIA Financial Advisers, Prudential, and Two Aviva Entities

Singapore, 15 June 2021… MAS has reprimanded AIA Financial Advisers Private Limited (AIA FA), Prudential Assurance Company Singapore (Pte) Limited (Prudential), Aviva Ltd (Aviva) and Aviva Financial Advisers Pte Ltd (Aviva FA) for breaches of requirements relating to risk management arrangements and the remuneration of supervisors. MAS also reprimanded Mr Peter Tan Shou Yi, a consultant engaged by Aviva, for accepting remuneration in breach of regulatory requirements, and Aviva FA’s CEO and Director, Mr Chee Boon Chai Lionel, for his failure to discharge the duties of his office.

2     In the course of MAS’ ongoing supervision, there were indications that these financial institutions may have breached regulatory requirements on remuneration practices. MAS conducted an investigation and found numerous instances where remuneration was paid to supervisorsA supervisor is a person who is responsible, whether directly or indirectly, for the supervision or management of the conduct and performance of any representative of a financial adviser. in contravention of requirements under the Financial Advisers Act (FAA). These related to the Balanced Scorecard requirements (BSC) for the sale of investment products, and the Spreading and Capping of Commissions requirements (SCC) for the sale of regular premium life policies.

3     The BSC and SCC seek to align the incentives of financial adviser (FA) firms, representatives and supervisors with their customers’ interests, to promote a culture of fair dealing. Under the BSC, supervisors’ and representatives’ variable income are determined with reference to the fulfilment of non-sales key performance indicators (KPIs). Under the SCC, insurers and FA firms are required to cap the variable income payable to representatives and supervisors in the first year and spread the remaining variable income payable over a prescribed period.

Reprimand against AIA FA

4     Three of AIA FA’s Managing Directors (MDs) had acted as supervisors of AIA FA. They were responsible for the supervision of the conduct and performance of the representatives in their respective agency groups, including sales and compliance standards. However, AIA FA failed to review and assess the performance of these MDs, assign BSC grades as well as determine and pay their remuneration in accordance with the BSC. AIA FA also failed to cap and spread the MDs’ variable income in accordance with the SCC.

Reprimands against the Aviva Entities, Mr Lionel Chee and Mr Peter Tan

5     Aviva engaged Mr Tan as a consultant from July 2016 to March 2020, to provide strategic advice on Aviva FA’s business. During this period, however, Mr Tan went beyond providing strategic advice and acted as a supervisor to Aviva FA’s representatives. He had frequent and direct interactions with Aviva FA’s representatives, including discussions on sales and compliance issues. However, from July 2016 to April 2019, neither Aviva nor Aviva FA had put in place compliance arrangements to monitor Mr Tan’s activities in Aviva FA. For failing to put in place such arrangements, Aviva and Aviva FA contravened the Guidelines on Risk Management Practices – Internal Controls (RM Guidelines) and the Financial Advisers Regulations respectively.

6     Mr Tan had acted as a supervisor of Aviva FA by virtue of his roles and responsibilities in the firm, but Aviva FA failed to review and assess Mr Tan’s performance, assign a BSC grade to him, and determine and pay his remuneration in accordance with the BSC. Aviva also failed to cap and spread his variable income in accordance with the SCC. In accepting such remuneration, Mr Tan also breached the SCC.

7     MAS has also reprimanded Aviva FA’s CEO and Director, Mr Chee, for his failure to discharge the duties of his office. In addition to failing to ensure that Aviva FA put in place arrangements to monitor Mr Tan’s activities, Mr Chee did not properly address the issue of poor conduct of Aviva FA’s representatives, which included misrepresentations to customers regarding the nature and features of certain insurance products. Despite MAS’ repeated supervisory engagements with Aviva FA between August 2017 and September 2018 over the sales conduct of its representatives, the measures put in place by Aviva FA to address these issues remained inadequate. As a result, MAS directed Aviva FA to appoint independent external persons to conduct a holistic review of the company’s internal control processes, and to perform call-backs to all customers before any sales are completed. These measures are still in place.

Reprimand against Prudential

8     Three individuals referred to as Master Group Agency Manager (MGAM) Leaders and a Consultant appointed by Prudential had acted as supervisors of Prudential. However, Prudential failed to review and assess the performance of the MGAM Leaders and Consultant, assign BSC grades to them, as well as determine and pay their remuneration in accordance with the BSC requirements.

9     Prudential also breached the RM Guidelines as it failed to put in place adequate risk mitigation procedures and compliance arrangements to monitor the MGAM Leaders’ and Consultant’s activities.

10     Ms Ho Hern Shin, Deputy Managing Director (Financial Supervision), MAS said, “MAS expects financial institutions to have robust arrangements to ensure that their representatives place their customers’ interests first. Our requirements on remuneration practices relating to the sale of investment and life insurance products aim to promote good sales conduct in the financial advisory industry. We have dealt firmly with these financial institutions and individuals who have breached our regulations, to send a clear message to the industry on the importance of upholding high ethical standards.”

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Additional Information

BSC Requirements

MAS requires FA firms to put in place a BSC framework for remunerating their representatives and supervisors. Under the BSC framework, representatives will be assessed based on 4 non-sales KPIs, namely (i) understanding a client’s needs; (ii) suitability of product recommendations; (iii) adequacy of information disclosure; and (iv) standards of professionalism and ethical conduct in relation to the provision of FA services. They will be assigned a BSC grading every quarter based on the number and severity of infractions uncovered from post-transaction sample checks by the Independent Sales Audit unit, mystery shopping surveys and customer complaints. The BSC grading will determine the amount of variable remuneration that the representative is entitled to in each quarter. A representative who is graded A in a quarter will be entitled to 100% of his or her remuneration in that quarter. Conversely, a representative who is graded E will either not receive any remuneration or will only be entitled to less than 25% of his remuneration for the same period. As supervisors play an important role in coaching and monitoring the conduct and performance of their representatives, their BSC grades and variable remuneration will also be affected if representatives under their supervision fail to meet the non-sales KPIs. More information on the BSC requirements can be found here.

SCC Requirements

The SCC requirements apply to the sale of regular premium life policies to individuals. They require insurers and FA firms to cap variable income payable in the first year to representatives and supervisors at 55% of total variable income payable, and to spread the remaining 45% over a prescribed period.

The variable income paid to FA firms (i.e. distributors) and their representatives and supervisors for regular premium life insurance policies were previously heavily front-loaded, with the bulk of total variable income paid in the first year of the policy. A representative who has received most of his total variable income upfront may not be incentivised to provide quality after-sales services to his clients. The SCC Requirements were therefore introduced to address these concerns and better align the interests of FA firms and their representatives and supervisors with that of their customers.

The obligation to comply with the SCC Requirements rests on both the payors (FIs) and payees (individuals acting as representatives or supervisors). More information on the SCC requirements can be found here.

Requirements to put in place compliance arrangements

FIs are expected to put in place appropriate compliance arrangements to ensure that they comply with all applicable laws and rules and to mitigate the risks of non-compliance.

The RM Guidelines provide guidance to FIs on sound and prudent internal control practices. FA firms are also required under regulation 14 of the Financial Advisers Regulations to put in place compliance arrangements to ensure they comply with the applicable legal and regulatory requirements. Effective compliance arrangements help protect customers’ interests and reduce the possibility of unexpected losses or damage. Please refer to the RM Guidelines here.