By Francis Chan

A BIG shake-up in the way investment products are sold is on the way, with beefed-up rules and tough new laws to drive shoddy and aggressive merchants out of the industry.

The Monetary Authority of Singapore (MAS) released a draft consultation paper yesterday outlining what is acceptable practice and what crosses the line into mis-selling and deception.

Its move comes after months of controversy over the way complex investment products were sold to people, including many elderly and lowly educated folk.

The proposals centre on two broad approaches - shining more light on what may seem to be dauntingly complicated products and strengthening a culture of accountability among financial advisers.

Some of the key changes require financial institutions to provide customers with simple, user-friendly 'product highlights sheets', and including 'health warnings' on complex investments.

Prospectuses will also have to be clearer and advertising material must come with more information about risk.

There will also be a new category of 'complex investment products' that cannot be sold to investors without professional advice. The scope of these complex products would have covered structured products like Lehman Minibonds and DBS High Notes 5.

And bank tellers will be barred from selling investment products or pushing customers towards representatives selling them.

The MAS itself will get new powers, allowing it to pursue breaches under the Financial Advisers Act. The Act will be beefed up as well, with the addition of a new civil penalty regime which will allow MAS to take civil penalty action against institutions or people who contravene the FAA provisions.

The MAS said most of the proposals were formulated with reference to investors' complaints, its own review of the processes of the financial institutions and developments in other jurisdictions.

Views of market players, industry associations, the Consumers Association of Singapore (Case) and the Securities Investors Association (Sias) were also sought.

The move was also prompted by the controversy over huge losses in structured investment products linked to failed US bank Lehman Brothers.

Lehman's collapse last September triggered widespread losses among the products, including about $660 million here.

MAS has pledged to review the way investments are sold after the scandal highlighted the need for a tougher regime.

Yesterday's proposals go a long way to meeting that objective, said DBS Bank and Standard Chartered Bank, with both believing that the proposals will strengthen sales processes even further.

Case and the Society of Financial Service Professionals are also in favour of them.

'The new measures will promote a higher level of disclosure, fair dealing and safeguard investors' interest,' said Case president Yeo Guat Kwang.

In penning the proposed new rules, MAS also opted to give financial institutions some flexibility. Suggestions for a blanket ban on selling complex products to the elderly or the lowly educated, for example, were not taken up.

Indeed, MAS warned that rules can only do so much.

'Regulation by itself is never a complete answer. We expect institutions to go beyond mere compliance with regulatory requirements,' said deputy managing director Shane Tregillis.

The public has until April 23 to give their views on the consultation paper, which is available on the MAS website.

This article was first published in The Straits Times.