Published July 8, 2009

COMMENTARY
The cane whistles, but does it really hurt?

MAS bans won't affect FIs much and it shouldn't gloss over deeper issues

By WONG WEI KONG
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IT is a pity that what seems so tough is really just a slap on the wrist.

So the Monetary Authority of Singapore (MAS) has banned 10 financial institutions (FIs) from selling structured notes for periods ranging between six months and two years for mis-selling products linked to collapsed US bank Lehman Brothers.

The offending banks on the list are all established names: ABN-Amro, DBS Bank, Maybank, DMG and Partners Securities, UOB Kay Hian, CIMB, Kim Eng Securities, OCBC Securities, Phillip Securities as well as Hong Leong Finance. These were names that many investors instinctively trusted - but, as the MAS findings show, it was a trust that was grossly misplaced.

On the surface, the MAS ban, following approximately seven months of investigations, appears to be appropriate punishment. But it really rings hollow, because it isn't going to hurt the FIs very much. The fact is that the whole structured products market has vanished - the financial crisis and the structured notes fiasco have seen to that. Even without the ban, these FIs weren't selling any structured notes.



This will be cold comfort to the 10,000 or so investors who suffered from the mis-selling, some of whom will never fully recover from the blow. And it isn't satisfactory, given the serious lapses at the FIs. The list of shortcomings makes for shocking reading: risk profile questionnaires that were wrongly scored; risk profile scoring systems that did not allocate numerical scores; wrong classifications of products, and relationship managers (RMs) and representatives who refused to attend the pre-requisite training. And all the FIs get, so far at least, is a ban on doing a business that doesn't exist anymore.

If a ban really means nothing, the MAS should have imposed fines, big fines, that will hurt the FIs. If it does not want to collect fines, it should have considered pushing the FIs to compensate, more than what they have done, the investors who are seeking redress. Of course, the FIs will say they're suffering reputational damage, but that's already a fact, and that is well deserved.

Oversight and processes

There's another point worth making. Apart from investigations into FI-wide issues, the MAS is concurrently looking into specific cases 'where individuals involved in the sale and marketing of the notes may have departed from the relevant regulatory standards'. Inquiries are ongoing and any regulatory action taken against individuals will be published in due course, the central bank said.

While it remains to be seen what the MAS will do in this respect, it will be a pity if any subsequent action taken is only against the RMs and representatives actually selling the products on the ground. The nature of the lapses identified by the MAS suggests a failure in oversight and processes, which really points the finger at senior executives, and they shouldn't escape responsibility.

And what about the MAS' own role? Dare we suggest that if the sub-prime fiasco hadn't happened and Lehman hadn't collapsed, the mis-selling would have continued merrily and no one would be the wiser? How closely did the central bank supervise the banks when it came to the sale of structured products before the crisis? Liberalising the market is good, but if not implemented properly, the costs, as proven now, are enormous. The MAS itself should be deriving lessons from the whole affair.

Time to win back trust

The industry will respond to this as it usually does. Indeed, the Association of Banks in Singapore (ABS) immediately announced that its member banks are putting in place a series of measures to further protect the interests of consumers who buy investment products, with the measures covering a range of governance and assurance processes, training and compensation of sales personnel, consumer education and enhancements to the sales process. Investors will take all this with a pinch of salt. Weren't there such protestations before?

Forget expansion - winning back trust should be the biggest priority for banks and financial institutions.

Published July 8, 2009

MAS caps unsavoury saga with selling bans on 10 FIs

Damning report on how Lehman-linked notes were sold; sanctions on selling structured products

By SIOW LI SEN

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(SINGAPORE) A seven-month investigation into the manner in which Lehman-linked products were mis-sold to unsuspecting, and often inexperienced, investors has concluded with some disturbing revelations - and an unprecedented step.

The Monetary Authority of Singapore (MAS) has banned 10 financial institutions (FIs) from selling structured notes for periods ranging between six months and two years.

The 100-page report released by MAS yesterday paints a picture of occasionally untrained staff at these FIs aggressively pushing complex products at retail investors. The risk associated with these products - and sometimes even the clients' risk profile - was treated cavalierly on occasion.

There were instances of salespeople who had not even attended training. High-risk products were classified as low risk.

Hong Leong Finance, which was handed the most severe two-year sanction - used a client risk profile sheet which was basically meaningless - as no scores were assigned. It sold such notes to 428 people who had no prior investment experience.

OCBC Securities improperly used 'introducers' to sell the notes. For this, it has been slapped with a lifetime ban from using licensed financial advisers who earn referral fees for introducing clients, apart from a one-year ban from dealing in and providing financial advisory services for structured notes.

CIMB-GK Securities, Kim Eng Securities and Phillip Securities also received one-year bans. In each case, their staff were found to be improperly trained.

ABN-Amro, DBS, Maybank, DMG & Partners Securities and UOB Kay Hian face six-month bans from dealing in structured notes with effect from July 1, 2009 or until there are adequate measures in place, the MAS said.

Hong Leong Finance (HLF), which received the stiffest ban, has also paid the most in compensation - some $57.6 million in all. It was also the single biggest seller of the toxic products. Over a 19-month period, Singapore's largest finance company, which has 28 branches mainly in the heartlands, sold a total $106.2 million worth of Minibond and Pinnacle notes to 2,781 investors.

HLF has offered full or partial compensation to 2,048 investors representing 95.5 per cent of cases decided.

Maybank's risk profiling scoring system was found to be faulty. It, too, did not allocate scores to the client's investment experience and suitability for the product. For some of the Minibonds - which were not bonds - Maybank in fact informed its salespeople that they were suitable for clients who wanted to diversify their portfolio with bonds.

While the findings were pretty damning in highlighting some of the unsavoury practices which have been going on in the industry for several years, there was no magic bullet for investors unhappy with settlements offered by the FIs and thinking of taking legal action.

'The failings identified in MAS's investigations do not automatically mean that the financial institutions are liable to individual investors,' said the MAS.

'An investor would have to show that he relied on the particular recommendation or representation based on the specific facts and circumstances at the time of purchase,' it said.

'These would include the various documents that the investor signed or acknowledged receipt of as part of the transaction such as documentation containing risk warnings and disclaimers about the liability of the financial institutions distributing the notes.'

Chung Wing Kee, a Minibond Investors Action Group member, said that the action taken by MAS did not go far enough.

'Who in their right minds will buy structured products for the next two years . . . it's just a slap on the wrist,' said Mr Chung.

'MAS did not come up to say the FIs were wrong, we'll let the courts decide; if they didn't do anything wrong, why impose a two-year ban?' he said.

As at the end of May, the three banks and HLF have offered settlements to 67 per cent of investors whose cases have been decided, amounting to about $105 million.

More than 50 per cent of cases decided have been offered settlements of 50 per cent and above with 26 per cent receiving offers of full settlement. Some 85 per cent of settlement offers have been accepted, 3 per cent have been rejected and the rest have yet to decide. The stockbroking firms have offered settlements amounting to $2.7 million to 33 per cent of investors whose cases have been decided. 70 per cent of settlement offers by the stockbroking firms have been accepted, 11 per cent have been rejected and the rest have yet to decide.

The MAS said that 10,320 retail investors sank $520 million into the Lehman-linked products which became worthless following the collapse of the US investment bank Lehman Brothers last September.

With additional reporting by Brandon Chew

Published July 7, 2009

Ban on maids to M'sia may end: Jakarta

Indonesian labour minister proposes minimum wage, compulsory day off

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(KUALA LUMPUR) Indonesia yesterday said that its ban on sending maids to Malaysia, triggered by the latest abuse case, could be lifted within weeks if discussions are successful.

Ensuring their safety: Mr Suparno (centre), inspecting the injuries to maids Modesta Rengga Kaka (left) and Siti Hajar (right) during his visit to the Indonesian Embassy in Kuala Lumpur yesterday

The ban was imposed last month after a 43-year-old Malaysian woman was charged with causing grievous bodily harm after beating her Indonesian maid and scalding her with boiling water.

Indonesian Labour Minister Erman Suparno said that in discussions with Malaysian officials yesterday, he made proposals including the introduction of a compulsory day off for maids - who currently often work seven days a week.

He also wants maids to be allowed to retain their passports, instead of giving them to employers, and to have their wages paid into a bank to deter employers from withholding salaries.

'We want severe punishment on employers who abuse their maids,' he told a press conference.

The proposals, as well as a bid to introduce a minimum wage, will be discussed further when the two sides meet here formally on July 15.

'We will start discussions on July 15; and hopefully in two weeks, we will arrive at a decision,' the minister said.

'We hope that the discussion will solve the problems so we can resume sending the maids,' he said. 'We are optimistic.'

Mr Suparno criticised the low wages that Indonesian domestic workers receive in Malaysia, often about RM400 (S$165) while their counterparts from the Philippines earn two or three times as much.

'There should be a standard wage regardless of where the maids are from. There should be no difference between Indonesia and the Philippines. This is a form of discrimination,' he said. Malaysia has no laws governing working conditions for domestic workers but has promised to draft legislation to protect them from sexual harassment, non-payment of wages and poor conditions.

Malaysian officials said that an average of 50 maid abuse cases were reported each year out of 300,000 Indonesian maids working here, but the Indonesian embassy here said that 1,000 maids experience violence and mistreatment annually.

In the most recent abuse case, a 25-year-old Indonesian claimed that she was beaten and punched by her employer and had not been paid for two years. She was rescued with bruises and scars after a neighbour called the police. The case is under investigation.

Also last month, a Malaysian woman was charged with scalding her 33-year-old Indonesian maid with hot water and injuring her with scissors and a hammer. The employer faces up to 20 years in jail and a fine or whipping if convicted in court of causing grievous hurt.

About 1.2 million documented Indonesians are in Malaysia, with illegals estimated to number about 800,000. -- AFP