Published March 13, 2009

Better-armed MAS to go after errant FIs

Regulator proposes wider powers to rap culprits, help investors get compensation

By SIOW LI SEN

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(SINGAPORE) The Monetary Authority of Singapore (MAS) is seeking more muscle to prosecute errant financial institutions (FIs). Investors can then ride on the coat-tails of successful prosecution to get compensation.

The regulator yesterday said it is proposing additional powers under the Financial Advisers Act including the introduction of the civil penalty regime and for MAS to apply to court for injunctions under a sweeping review to tighten up selling of investment products.

The review comes after some 10,000 investors, many of them retirees, lost their savings in investment products following the collapse of Lehman Brothers last September.

Under a civil penalty regime where the burden of proof is on a 'balance of probabilities' - as opposed to the higher criminal burden of proof of 'beyond reasonable doubt' - MAS will have more flexibility and greater scope to go after FIs which breach the rules.

In addition, the power to apply to court for injunctions means MAS can 'corral a sum of money belonging to a person or FI subject to civil proceedings, so that there will be sufficient funds to meet any civil penalty imposed or protect the interests of the public', it said.

Investors will be able to get compensation from a successful MAS prosecution without having to mount expensive legal suits under the proposal to add a coat-tail provision.

'This means that affected investors can ride upon the verdict of a criminal conviction or a civil penalty action brought by MAS, to file compensation claims.

'They will not need to take individual court actions to prove that the contravention had occurred before applying to court for compensation,' it said.

Other proposed changes governing the sale of unlisted investment products include putting a health warning on complex products such as the failed Lehman Minibonds which had embedded derivatives.

Going forward, FIs will have to be explicit when marketing investment products. Disclosures on products will have to be clear, concise and effective, and no more than four pages so investors are not put off by telephone book-size prospectuses.

Another contentious area is also under review - whether FIs will still be allowed to sell capital or principal-protected products.

'Some investors have raised concerns that they have difficulty understanding the term capital/ principal protected and how this term is different from 'capital/principal guaranteed',' MAS said.

In both cases, the aim is to ensure that investors get back at least their capital. But the way to achieve that varies, from having a conservative mix of assets to buying a zero-coupon bond. Where they diverge is that a capital-guaranteed fund has an extra layer of 'protection', a guarantor that's usually a bank. Of course, there is a risk that the guarantor defaults even as the investments sour - hence, even capital-guaranteed fund investors may lose their money.

MAS has also proposed making sales people go for additional training if they are selling complex investment products.

MAS is inviting the industry to give its feedback to the proposed changes within six weeks.

Last night, an MAS spokeswoman said that the regulator intends to implement the proposals as soon as possible.

As a first step, MAS will issue the Fair Dealing Guidelines at the end of this month 'to make clear our expectations of what the board and senior management of FIs should be doing to embed a culture of dealing fairly with their customers throughout their whole organisation'.

Rajan Raju, DBS Bank managing director, consumer banking group, said that the bank had already rolled out its refined sales process early this year.

'We will continue to refine this process as we keep abreast of industry developments,' he said.

'We have already started working to enhance our existing processes in the sale and marketing of investment products.'

Nicholas Tan, OCBC Bank head of global wealth management, said 'the proposed measures will raise the standards for the marketing of investment products across the industry and should also give retail consumers, especially the vulnerable ones, greater confidence when investing'.