3 August, 2015
1. Introduction
The Monetary Authority of Singapore (“MAS”) has issued a consultation paper on 23 July 2015 proposing the introduction of Market Conduct Guidelines and notification processes for Financial Institutions (“FIs”). These rules are proposed to apply to FIs that market their financial products and services in public places or enter into distribution arrangements with retailers to market their financial products and services at such venues.
The above mentioned marketing and distribution methods increase the reach of FIs to members of the public. These methods are an important component of some FIs’ business models, in particular, FIs which do not operate a large physical branch network. However, MAS has raised concerns that the outreach by FIs to the public may give rise to market conduct issues.
According to the MAS, these concerns include:
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(a) Harassment of consumers;
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(b) Confusion over the roles of the FI and retailer;
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(c) Enticement of consumers to purchase unsuitable products;
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(d) Non-conducive environment for the purchase of financial products; and
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(e) Mishandling of cash and cheques collected.
MAS has proposed a two-prong supervisory approach, comprising of the following components, in order to assuage such concerns:
- (a) Market Conduct Guidelines; and
- (b) MAS monitoring through prior notification.
2. Market Conduct Guidelines
According to the consultation paper, FIs will be required to comply with a set of Market Conduct Guidelines (“Guidelines”) setting out controls and safeguards that FIs should put in place when conducting marketing and distribution activities at retailers and public places. These measures are aimed at mitigating the risks of FIs engaging in improper practices.
The Guidelines are proposed to apply to the following FIs:
- Banks;
- Non-bank credit card and charge card licensees;
- Holders of a capital markets services licence;
- Licensed financial advisers; and
- Insurance companies and their intermediaries.
The MAS has stated that it is concerned with the potential market conduct risks posed to members of the public, some of whom may not fully appreciate the risks and financial commitments required of financial products and the implications from impulse and unsuitable purchases. Notwithstanding this, MAS has noted that roadshows at public places and distribution arrangements with retailers are an important component of some FIs’ business models. Such marketing and distribution arrangements also create greater awareness of, and facilitate easier access to, financial products and services for consumers.
In light of the above, MAS has proposed to have the Guidelines apply to the following financial products and services:
- Banking products and services, including credit cards, charge cards and unsecured facilities;
- Capital Market products1 and services;
- Life insurance; and
- General insurance, including accident and health insurance.
The proposed Guidelines will apply to all arrangements accessible to members of the public. “Closed-door” events such as seminars organised in an auditorium by invitation (or subject to registration) or a workplace seminar will not be subject to the rules.
The following are the key safeguards which MAS has proposed to introduce through the Guidelines:
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For insurance products and collective investment schemes, FIs should conduct call-backs to all customers prospected at retailers and/or public places before or within the free-look or cooling-off period, to ensure that such customers have understood their transactions conducted at such locations.
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FIs should conduct regular mystery shopping and site visits to ensure that the practices of representatives are conducted in line with internal standards and procedures as well as the Guidelines.
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FIs should separately track and monitor complaints arising from their marketing, sales and advisory activities at retailers and/or public places. Complaint statistics should also be reported to senior management on a regular basis.
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FIs should maintain a register containing information on their marketing and distribution arrangements at retailers and /or public places.
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Prospecting for customers should only take place in the immediate vicinity of the sales booth. Representatives must not cause annoyance by being unreasonably persistent or by placing undue pressure on members of the public.
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Representatives should clearly disclose their identities and the FI that they are representing upfront when they prospect for customers.
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Representatives will be required to undergo training on proper sales and advisory conduct at retailers and/or public places.
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The remuneration and incentives paid to representatives for financial products and services sold at retailers and/or public places should not be higher than the remuneration and incentives for financial products and services sold at other locations or through other channels.
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FIs should ensure that any gift offered to customers by FIs and/or the retailer does not influence the decisions of customers to purchase any financial product or services.
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FIs should have adequate controls in place to ensure that payments collected from customers at retailers and/or public places are properly handled and securely kept.
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Where the FI markets its financial products and services at retailers, the FI should clearly disclose to consumers the relationship between the FI and the retailer, and each party’s roles and responsibilities.
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Where the FI markets its financial products and services at retailers, the FI should also ensure that their co-branding efforts with the retailer (if any) are not misleading, nor do they create any confusion among consumers as to the roles and responsibilities of the FI and the retailer.
3. MAS Monitoring through prior Notification of Marketing Activities
MAS has proposed to require prior notification by FIs of their plans to conduct marketing and distribution activities at retailers and/or public places, as well as information on the actual activities conducted. Such notification requirements will allow MAS to monitor the proliferation of such activities and take pre-emptive measures where necessary to mitigate the associated market conduct risks posed to consumers.
Notification by the FIs is proposed to be on a quarterly basis. FIs will be required to provide details of their marketing and distribution arrangements. For arrangements with durations shorter than one quarter, FIs will be required to furnish information on:
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(i) their plans to conduct marketing and distribution activities at retailers and/or public places in the next calendar quarter at least two months prior to the start of the next calendar quarter; and
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(ii) the actual activities that have been conducted in the preceding calendar quarter.
For arrangements with durations of one quarter or longer, FIs will be required to furnish information on any new arrangements at least two months prior to the start of the calendar quarter in which such arrangements will commence. Thereafter, FIs will also be required to notify MAS of any changes to such arrangements.
4. Consultation period
The consultation period ends on 24 August 2015.
1 “Capital Markets products” (proposed in the Consultation Paper on Proposed Amendments to the Securities and Futures Act dated 11 February 2015) means any securities, unit in a collective investment scheme, derivative contract, spot foreign exchange contract for the purposes of leveraged foreign exchange trading, and such other products as the MAS may prescribe.
