Conventus Law

Conventus Law

by

MAS Consultation Paper on Revisions to Guidelines on Fair Dealing – Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers

On 14 December 2022, the Monetary Authority of Singapore (“MAS”) issued a Consultation Paper on proposed revisions to the Guidelines on Fair Dealing – Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers (the “Guidelines”). This Client Update provides a summary of the key proposals in MAS’ Consultation Paper.

1.Introduction

MAS first introduced the Guidelines in 2009 to promote fair dealing by financial institutions when conducting business with their customers. They incorporate lessons learnt from the 2007-2008 financial crisis, public comments and MAS’ draft proposals from the consultation paper on Review of the Regulatory Regime Governing the Sale and Marketing of Unlisted Investment Products.

The Guidelines apply to the selection, marketing and distribution of investment products and the provision of advice for these products. In particular, they focus on the responsibilities of a financial institution’s board and senior management for delivering fair dealing outcomes to customers and after-sales services and complaints handling.

Five fair dealing outcomes were identified in the Guidelines:

  • Outcome 1: Customers have confidence that they deal with financial institutions where fair dealing is central to the corporate culture.
  • Outcome 2: Financial institutions offer products and services that are suitable for their target customer segments.
  • Outcome 3: Financial institutions have competent representatives who provide customers with quality advice and appropriate recommendations.
  • Outcome 4: Customers receive clear, relevant and timely information to make informed financial decisions.
  • Outcome 5: Financial institutions handle customer complaints in an independent, effective and prompt manner.

These five outcomes aim to establish clear benchmarks for assessing the success of financial institutions in promoting good market conduct practices.

In the Consultation Paper, MAS is now proposing to revise the Guidelines by:

  • expanding the application of the Guidelines to all financial institutions, all financial products and services offered by them and all their customers;
  • including expectations for financial institutions to adopt sound and objective processes to assess applications for financial products and services;
  • applying the Guidelines not just to distributors but also to product manufacturers;
  • incorporating principles and expectations on providing information that accurately represent the products and services offered and delivered; and
  • including the expectation that right of review clauses ought to be disclosed to customers and that the right of review ought to be exercised judiciously

2. Expanding the scope of application of the Guidelines to all financial institutions, all financial products and services offered by them and all their customers

The Guidelines currently apply to the selection, marketing and distribution of investment products and the provision of advice for these products. In addition, the Guidelines are also written with retail customers and investment products in mind, although financial institutions are strongly encouraged to apply them to other customers and products.

MAS is now proposing to expand the scope of the Guidelines so that they would explicitly apply to: (a) all financial institutions; (b) all financial products and services offered by them; and (c) all their customers. However, MAS recognises that financial institutions offer a wide range of services which can differ in terms of what information is needed, and what advice or recommendations are given. MAS is therefore inviting comments on its proposed expansion of the application of the Guidelines on a proportionate basis relevant to the nature of these financial products or services.

3. Expectations for financial institutions to adopt sound and objective processes to assess applications for financial products and services

In respect of Outcome 1 (“Customers have confidence that they deal with financial institutions where fair dealing is central to the corporate culture”), the Guidelines currently set out the following key areas which the board and senior management should address to develop an organisational culture of fair dealing:

  • Devising a clear strategy to achieve fair dealing outcomes – This should cover allocation of executive responsibilities, implementation of a set of measurable targets and development of a remuneration structure for senior executives which is linked to key performance indicators for achieving the fair dealing outcomes.
  • Aligning organisational policies and practices to the fair dealing outcomes – This should include robust due diligence procedures for selecting investment products and services suitable for its customers, training and supervision of staff, procedures for whistleblowing, effective performance evaluation and remuneration to encourage the right behaviour, and proper assessments for partnerships with other financial institutions or introducers in its distribution business.
  • Communicating to internal and external stakeholders that fair dealing is a priority for the financial institution.
  • Monitoring the effectiveness of the strategy and policies to achieve the fair dealing outcomes

MAS is proposing to include guidance for financial institutions to adopt sound and objective processes to assess applications for financial products and services. It explained that this means that financial institutions should not accord differential treatment to any individual or groups of individuals when providing financial products and services, unless there is justification supported by relevant and reliable information or data.

An example, provided by MAS, of inappropriate differentiated treatment would be where an insurer rejects a prospective customer’s application for insurance based on his declaration of personal information but without first doing a properly substantiated risk-based assessment. MAS emphasised that an insurer should apply consistent risk assessments to all insurance applications and where an application is to be rejected, or approved only with additional conditions, the insurer ought to explain the basis for its decision by reference to relevant information or data.

4. Applying the Guidelines not just to distributors but also to product manufacturers

MAS expects financial institutions to deal with their customers fairly across various stages of the product life cycle or provision of service. Accordingly, it is now proposing to apply the Guidelines not just to distributors but also to product manufacturers.

In this regard, MAS observed that the current wording of Outcome 2 (“Financial institutions offer products and services that are suitable for their target customer segments”) can already accommodate the design and manufacturing of products and services. However, MAS is proposing to include additional expectations for product manufacturers, such as:

  • putting in place policies and procedures that support the appropriate design of products and services to meet the needs of their target customer segments, taking into consideration the potential impact on customers; and
  • having systems and controls in place to manage the risks posed by the design of the product or service.

5. Expectations on providing information that accurately represent the products and services offered and delivered

Currently, Outcome 4 (“Customers receive clear, relevant and timely information to make informed financial decisions”) outlines measures that should be taken before, during and after the advisory and sales process by financial institutions to provide customers with clear, relevant and timely information. Broadly speaking, they cover:

  • presenting information clearly and in a simple format;
  • training and monitoring of representatives to ensure that verbal explanations are consistent with information written in product disclosure documents;
  • having additional safeguards for customers with limited knowledge or understanding of investment products;
  • ensuring that product disclosure documents provide a fair and balanced view of the investment product and highlight all key risks;
  • informing customers how they can provide feedback or lodge complaints about the financial institution or its representatives;
  • providing customers with information and updates about their investments, both during the advisory and sales process and after the sale has been concluded

Following thematic inspections of large mortgage lending banks conducted in 2020 to 2021, MAS had identified three key principles that underpin and strengthen a financial institution’s fair dealing practices:

transparency – providing adequate and clear disclosures on the product or service features, fees, and terms and conditions in marketing materials, fact sheets and contracts;

consideration of customer interests – not engaging in practices that disadvantage individuals or groups of individuals without good justification, and the product or service performs as explained and as customers are led to expect; and

• accountability and product governance – having a comprehensive approval and governance framework, with adequate management oversight of product or service pricing and sales practices to monitor compliance with regulations.

MAS said that these principles apply to all products and services offered by financial institutions. It is therefore proposing to incorporate these principles within Outcome 4.

6. Expectations as to disclosing the right of review and exercising the right of review judiciously

MAS is also proposing to include, within Outcome 4, the expectation that financial institutions should disclose to customers the existence of a right of review (“ROR”) clause and that the right of review should be exercised judiciously.

MAS is also proposing to include, within Outcome 4, the expectation that financial institutions should disclose to customers the existence of a right of review (“ROR”) clause and that the right of review should be exercised judiciously.

MAS emphasised that customers ought to be made aware of how their rights and obligations might be impacted by an ROR clause.

At the minimum, MAS would expect financial institutions to do the following:

  • have a robust governance process in place to approve the invocation of the ROR clause – This should include escalation to a forum that has participation from senior management staff who are independent of the relevant business line. The forum should consider fair dealing outcomes for customers including the impact on customers and how potential detriment to customers may be mitigated.
  • waive any lock-in mechanisms or fees, so that the customer can switch out of the financial products without penalties and, as far as possible, make alternative arrangements
  • give customers sufficient written notice before the change takes effect – The written notice should explain the reasons for the change, impact on customers and options that customers can consider.

7. Conclusion

The proposals set out in the Consultation Paper expand the scope of application of the Guidelines and further articulate MAS’ expectations in relation to fair dealing by financial institutions. They underscore the importance of developing a corporate culture within financial institutions that promotes fair dealing towards customers.

MAS is inviting comments from financial institutions and other interested parties on the proposals set out in the Consultation Paper. The consultation period closes on 8 February 2023.

A copy of the Consultation Paper can be obtained here

This Client Update was authored by Genevieve Pang (Senior Associate).

WRITTEN BY

Shook Lin & Bok
For further information, please contact:

Eric Chan – Partner, Shook Lin & Bok
eric.chan@shooklin.com

Practice Area(s):

Banking & Finance
Environmental, Social and Governance
Financial Services Regulatory

Qualifications / Education:

Advocate & Solicitor, Singapore, 1993
LLM, University College of London, 1998
LLB (Hons), National University of Singapore, 1992

Eric Chan heads the financial services regulation practice. His work includes advising and helping banks and other financial institutions to understand and comply with Singapore financial regulatory rules and regulations. He works with financial institutions new to the Singapore market in helping them secure the requisite approvals, authorisations or exemptions, as well as existing financial institutions in relation to ongoing compliance issues. Eric’s work covers the full spectrum of the financial services sector in Singapore, and he works regularly with banks, financial advisers, insurers and insurance brokers, fund managers, securities brokers and other intermediaries.

Eric is also extensively involved in advising various financial institutions as well as corporate clients on privacy and personal data protection, as well as anti-bribery controls.

Eric started private practice doing general commercial and corporate litigation. He later joined the Monetary Authority of Singapore as in-house counsel, where he provided legal support and advice on various regulatory initiatives. During this time, Eric also concurrently taught banking law as an Adjunct Senior Fellow at the National University of Singapore. In 2003, Eric was seconded from the Monetary Authority of Singapore to the Bank for International Settlements in Basel, Switzerland, as a research fellow where he wrote a paper on payment systems law. After his stint, he rejoined the Monetary Authority of Singapore MAS as Head of International & Regional Relations where he led a policy team working on international central banking issues, including implementation of various international regulatory standards within Singapore. In 2006, Eric joined American Express Bank and served as the Regional Director for Compliance & Ethics responsible for compliance matters across the Asia-Pacific region. Eric returned to legal practice in 2008 and was until 2014, a director in another leading Singapore law firm where he had helped to set up and lead their financial services regulation practice.

Eric is a member of the Singapore Institute of Directors.

Matter Experience

Some of the transactions in which he was involved include:

  • Acted for Long Bridge Securities Pte Ltd in obtaining a Capital Markets Services Licence for dealing in capital markets products (2022);
  • Acted for SIX SIS Ltd in their application to the MAS for exemptions under the Securities and Futures Act in order to conduct business activity from Singapore (2022);
  • Acted for Sunrate in their application for a major payment institution licence under the Payment Services Act (2021);
  • Advising Indonesia ride-hailing firm Go-Jek on legal and regulatory issues in connection with their setting up of operations in Singapore (2019);
  • Assisting Long Asia Capital Pte Ltd in obtaining a Capital Markets Services licence for dealing in Capital Markets Products (2017/2018);
  • Assisting Copper Basin Capital Pte Ltd in obtaining a Capital Markets Services licence for fund management (2016/2017);
  • Assisting Zhongtai International Securities (Singapore) Pte Ltd in obtaining a Capital Markets Services licence for dealing in securities (2016);
  • Assisting CurrencyFair (Singapore) Pte Ltd in obtaining a remittance licence under the Money-changing and Remittance Businesses Act (2016);
  • Assisting Cenkos Securities Plc in obtaining a Capital Markets Services Licence for its subsidiary in Singapore (2015/2016);
  • Assisting GCA Savvian Singapore Pte Ltd to obtain Exempt Corporate Finance Adviser status in Singapore (2015/2016);
  • Advising Allgrace Investment Management Pte Ltd on regulatory issues relating to its acquisition of Singapore Consortium Investment Management Ltd (2015); and
  • Supporting and advising a foreign bank in Singapore in internal investigations as to the role of its staff in the rigging of the Singapore Interbank Offer Rate and the Swap Offer Rate (2012/2013).

Publications and Events

Eric is a contributing author of the Handbook on Financial Services Law and Regulation, published in 2019 by the Singapore Academy of Law. He is also a co-author of the Singapore chapter of Lexology-Getting the Deal Through’s Guide to Anti-Money Laundering since 2016. In 2018, he wrote the Singapore chapter of Private Funds: Where and How?, a book published by Dechert LLP in collaboration with Bloomsbury Professional Ltd. In 2002, he was also the contributing author to the inaugural edition of Volume 12 of Halsbury’s Laws of Singapore (on Banking and Finance).

Eric continues to write on a variety of issues relating to financial services regulation and privacy in Singapore, and regularly participates at seminars and conferences and provides training on these subjects.

Accolades

The Financial Services Regulation team which Eric leads is now ranked in The Legal 500.

Asialaw Profiles 2019 noted a client who described him as one who is “very pragmatic and willing to state a position that’s in the client’s interest, even if it may not be music to regulator’s ear.”

In 2020, Thomson Reuters noted that one bank client had described him as being “like a walking regulatory dictionary”.

Eric is also a Lexology Client Choice Award 2020 and 2021 Winner for Banking in Singapore.

Eric has been featured as a Recommended Lawyer in every successive edition of Who’s Who Legal for Banking – Regulatory since 2017. In 2022, he was ranked by Who’s Who Legal as a Global Leader for Banking – Regulatory and as a National Leader (Southeast Asia) for Banking.

In 2022, Eric was also named as a Thomson Reuters Stand-out Lawyer.

Register for your monthly Asia legal updates from Conventus Law

Error: Contact form not found.

RELATED ARTICLES