Published July 8, 2009

Financial institutions pledge to clean up act

After Lehman-linked notes fiasco, they are improving sales processes, training

By CONRAD TAN

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(SINGAPORE) Banks and other financial institutions here yesterday promised to tighten their internal controls and step up staff training in response to a damning report by regulators that found various faults at the 10 distributors of structured notes linked to Lehman Brothers.

Industry insiders said that they were already braced for the ban on selling structured notes for at least six months that was slapped on the three banks, one finance company and six securities broking firms by the Monetary Authority of Singapore (MAS) - the penalty for shortcomings uncovered by MAS's investigation into shoddy practices in the sale and marketing of the structured notes.

Some had already stopped selling structured notes late last year.

David Gerald, president of the Securities Investors Association of Singapore, which represents retail investors here, said that he was 'pleased that there's been a recognition by the MAS that there have been some failings on the part of the financial institutions and the fact that they've made it public'.

Now, 'the question that comes to mind is, how do we ensure that it doesn't happen in future', he added.

The Association of Banks in Singapore (ABS) - which represents more than 100 banks here - said that its members are putting in place 'a series of measures to further protect the interests of consumers who buy investment products'.

Many of the measures that ABS has chosen to adopt are identical to, or closely resemble, the proposals mooted in a consultation paper published by MAS on March 12.

These include banning bank tellers from referring customers to staff selling investment products.

Previously, tellers who served customers' traditional banking needs such as the updating of passbooks or cash withdrawals at a branch counter were not allowed to sell investment products, but it was common practice for them to suggest that customers talk to sales staff within the branch about investment or insurance products. That will no longer be allowed, ABS said last night.

Banks that sell structured products will also be required to introduce a 'cooling-off' period of up to seven days during which investors can cancel their purchase without paying sales charges or commissions.

In addition, banks will provide better and more specialised training for staff who sell complex investment products, ABS said. The industry is working with MAS to put together a new test for product knowledge on complex investment products that bank staff must pass before they are allowed to sell such products, it added.

Banks are also refining the way they pay sales staff so that performance is assessed on multiple measures rather than just rigid sales targets - to ensure that staff aren't tempted to push products or services aggressively.

In a statement, ABS director Ong-Ang Ai Boon acknowledged that 'banks have a responsibility to ensure that the right products are sold to consumers, depending on their risk profile and the suitability of products'.

Lim Eng Hai, chief executive of the Securities Association of Singapore - which represents all 10 local securities broking firms and several foreign stockbrokers operating here - said that its members would continue to improve the training and education of sales and other frontline staff.

Financial institutions insisted that they have been busy improving their sales processes.

DBS Group, which sold $104 million of Lehman-linked notes to over 1,000 retail investors, has strengthened its investment sales processes and stopped all counter referrals for investment products since January after a thorough review last year, a spokesman for the bank said.

Hui Yew Ping, managing director of OCBC Securities, said that as one of the distributors of the Lehman-linked notes, it 'regrets that investors who applied for the structured notes through us have suffered losses'.

He added that it had stopped distributing structured notes since November and is 'currently reviewing our sales and distribution processes'.

Hong Leong Finance, which has been barred from selling structured notes for at least two years - the longest ban of all 10 distributors of the ill-fated notes - said that it 'will take appropriate steps to address those findings applicable to the company'. Some of the others mentioned in the MAS report declined comment or could not be reached.