REGULATORS, financial institutions and individual investors all have a part to play in the current regime that governs the sale of structured products here.
That was the view of Trade and Industry Minister Lim Hng Kiang as he responded to MPs' questions yesterday on these investment products, which have sparked a storm of controversy in the wake of the collapse of Lehman Brothers.
Thousands of investors here face the prospect of losing significant sums of their savings invested in products linked to the former US investment bank.
Mr Lim, who is also the deputy chairman of the Monetary Authority of Singapore (MAS), said that the central bank's approach is one that 'balances regulation with the responsibility on the part of the institution to ensure that consumers are given a fair deal'.
He said that if there was evidence of regulatory breaches, MAS would not hesitate to take firm regulatory actions against the financial institution (FI) or its representatives.
'A number of possible mis-selling cases have already been raised to MAS' attention. MAS is reviewing these cases,' said Mr Lim, confirming that the central bank has been conducting formal inquiries into allegations of breaches of the law, inadequate internal controls by FIs or poor sales practices by their representatives.
'MAS will make an announcement of any actions it is taking when the inquiries are completed,' he said.
Mr Lim assured Parliament that MAS rules already require FIs and issuers of structured products to properly disclose the features and risks of the products to investors. Two key pieces of legislation - the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA) - help support that approach.
He said the SFA governs information disclosure that must accompany any public offer of securities.
That means that to comply with the law, issuers must include in the prospectus all information that an investor would reasonably need to make a proper assessment of structured products.
Mr Lim said MAS will check the information provided by the issuer and its advisers to ensure the prospectus discloses the risk and product features, and has 'no false or misleading statements'.
But he said that while MAS will ultimately register the prospectus if satisfied with the information, it will not, however, judge the merits of the investment.
'This is stated on the cover of the prospectus so that investors understand that the securities are not endorsed by MAS,' he said of the rule which was enacted for structured products in 2004.
In the cases of the Lehman Minibond Programme, DBS High Notes 5 and Merrill Lynch Jubilee Series 3 LinkEarner Notes, they all met the requirements for registration under the SFA.
On the sales and advisory process, Mr Lim cited the FAA, which sets out the steps to be followed when giving advice on investment products.
'Unless an investor chooses to opt out of receiving advice, FIs and their representatives must have a reasonable basis when recommending investments,' he said. 'In doing so, FIs must consider the investment objectives, financial situation and needs of the investor.'
Laws aside, Mr Lim said the Government expects the board and senior management of FIs to be responsible in ensuring fair dealing outcomes for consumers.
'For example, customers who are illiterate or not fluent in English should be accompanied by someone who is able to explain what is being presented by the representative,' he said, referring to a set of good practices published by MAS.
'The representative's supervisor should also be present during the sales presentations. FIs are also encouraged to have supervisors review the recommendations made by representatives.'
As for investors, Mr Lim said MAS launched the MoneySENSE national financial education programme in 2003 to enhance the financial literacy of consumers.
But he said investors must also take responsibility for investment decisions.
'As investors, we should understand the products we intend to invest in and ask as many questions as needed. If we still do not understand the product or its risks sufficiently, we should not invest,' Mr Lim said.
He said MAS had taken steps to address the structured products issue.
'What MAS did from the start was ensure that the FIs and trustee communicate clearly with investors and provide timely updates,' he said.
'MAS has been in close contact with the FIs and trustee. For the Lehman Minibond Programme, where Lehman Brothers is the swap counterparty, MAS has reminded HSBC...the trustee, that it is to carefully consider all options and to act in the interest of investors.'
MAS has also appointed individuals to help review the complaints handling and resolution processes of the FIs which had sold the toxic structured products.
The independent parties are to determine whether the FIs' complaints handling and resolution processes are independent, fair and transparent, and conducted in a timely manner.
'MAS has set a very clear timeline for the FIs to resolve the complaints. They are expected to devote all resources necessary to deal with the complaints,' said Mr Lim. 'MAS is keeping a close watch on the resolution process.'
This article was first published in The Straits Times on October 21, 2008.
