Sunday, 19 July 2009

MAS and structured products

A SMS message from a good friend (my best man and my proposer for NMP, actually) this past Friday reminded me that that was officially the last day of my NMP term. Well, as I've been telling people -- life goes on lah.

And so will this blog. In the past, I've refrained from posting my quick thoughts here, because I preferred to articulate them in Parliament. Well, since that is no longer a consideration, I hope to post my thoughts more frequently.

When MAS announced the outcome of its probe into the misselling of financial institutions and the consequent bans on FIs selling structured products, I felt so disappointed. For the past few months, MAS had been taking its time to complete its probe, while facilitating or even encouraging investors to go through its 3-step dispute resolution process to claim compensation.

But it seems quite probable that MAS would have, at an early stage of its investigation, already come across evidence of breaches by the FIs leading to institutionalised misselling. That being so, should not MAS have suspended its 3-step process pending the conclusion of its probe, so that all investors would have the full facts before them before being asked to agree to the FIs' offers of compensation? Has MAS spared a thought for those investors who were offered partial compensation and decided to cut their losses and accept the offers out of exhaustion or desperation? Who should compensate them now? Do they have any recourse for MAS' delay and failure to act?

More importantly, MAS' response to the misselling was to slap bans on the FIs in question. But as Leong Sze Hian has pointed out, they are now being prevented from selling products that nobody really wants to buy anyway. They have made their money, their employees have pocketed their bonuses from selling these high-risk products to low-risk-appetite consumers, and now many of their customers are stuck between the rock of partial or no compensation and the hard place of litigation. Once again, consumers end up holding the baby.

Surely the better and more responsible solution would have been for MAS to order the FIs to compensate -- in full -- those customers who had purchased structured products from them, in those cases where the FIs had been in breach of the rules. MAS does have the power to do so, under Section 58 of the Financial Advisers Act. That would be the just and equitable thing to do.

It would have provided real deterrence to FIs. A comparison with the punishments meted out by the UK's Financial Services Authority in cases of misselling shows very clearly just how inadequate the punishments imposed by MAS are. So much for a world-class supervisory and regulatory regime.


Alan Wong said...

I can understand now why you are not nominated for another term as NMP. You have caused our Ministers to suffer so much embarassment and constant headache.

To them, I suppose, you are a real pain in the orifice where your fellow NMP once liken it in her straw-up-the-nose analogy to anal sex.

But I must salute you for your frank and outspoken views about the failure of MAS to provide the minimum protection expected of MAS as a guardian against unscrupulous financial institutions.

wl said...

The MAS is known for supporting the FIs and it appears that the FIs interests rank higher than that of their customers.

Chee Wai Lee said...

Cool, looking forward to hearing more from you on issues facing Singapore! (or any other thing, for that matter)

Parka said...

How does the government expect to restore trust to people like that?

Why don't they use the law to protect and restore value by getting the banks to compensate the investors when duly just?

Even when the banks come out of the ban and commits the same mistake again, I am very sure the exact scenario will play out just like this time, with the banks going off the hook.

The government has already found the lapse. Shouldn't they release the findings? Does the public have the rights to these findings because they might be useful for their legal case.

Lastly, it's truly despising that these banks who are refusing to compensate the money. I'm speaking about the people running these institution. It's not as if they are protecting their own money or own interest, they are protecting the money of the bank.

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