THE Monetary Authority of Singapore (MAS) has acted appropriately in reviewing market practice in the sale of structured investment products by banks. The failures in Wall Street which gutted the value of these intricately linked investments brought an outcry in recent weeks from many local buyers, who variously have alleged misrepresentation, omission of crucial information or just plain pushy salesmanship. But there had been episodic complaints well before the Wall Street collapse which hinted at emerging problems, like the unethical hounding of unknowing elderly people who wanted only to open fixed-deposit accounts. It is hard to determine whether many or most financial institutions had been wilfully selective when advising clients buying such exotica as High Notes and Minibonds tied to the performance of underlying assets. It is just as hard to judge whether this has been a case of losing investors, who knew fully what they were doing, latching on to the worldwide anti-bank mood to extract compensation.

The central bank's duty in this unusual situation is to preserve banking confidence as a whole and also advance consumer fair play. The latter is never more important than now, as individual retail services are often disproportionally problematic. The MAS has done right to introduce transparency by appointing independent assessors to oversee the complaints resolution process undertaken by the banks and brokerages. This action is a one-off, in the nature of aiding in the settling of disputes.

Far more critical long term is the MAS' undertaking to re-examine the marketing of structured products. It is satisfied its regime is sound, but the global-connected securities and derivatives game is morphing all the time. Demand for whatever new instruments banks here will think up possibly will have evaporated following the Wall Street debacle, but Singaporean investors want an assurance of reliability and confidence in financial products when the situation normalises.

It cuts both ways. Dealing banks will likely come under tougher obligations to be completely upfront in explaining the risks. In such a regime, misrepresentation and omission of enabling facts should be heavily penalised. The MAS is proposing guidance for product labelling and risk rating. Dense language in offer documents should also be condensed in layman's terms as a statutory requirement, to obviate the devious sellers' defence that 'the customer never asked'.

On the customer side, it is a given that investment risks should be weighed and fully understood. There is no use regretting spilt milk. Caveat emptor, though admittedly much abused by sellers of services, is still a useful reminder to buyers of an obligation to self.

This article was first published in The Straits Times on October 4, 2008.