On 5 March 2013, the MAS issued a consultation paper seeking feedback on the recommendations of the Financial Advisory Industry Review Panel (the “FAIR Panel”) that were released on 16 January 2013. While agreeing in principle with the FAIR Panel recommendations, the MAS added its own recommendations and sought feedback on the FAIR Panel recommendations as well as its own recommendations (collectively the “FAIR recommendations”).
The introduction of the Bills is a step towards the implementation of the FAIR recommendations.The FAIR recommendations will raise the standards and professionalism of the financial advisory industry, and encourage greater efficiency in the distribution of life insurance and investment products. It will also create a more competitive market for insurance products and empower consumers to make informed decisions through better access to information.
The MAS had conducted a public consultation on draft versions of the Bills in October 2014. Amendments to the Financial Advisers Act (the “FAA”) were also proposed to facilitate inspections of financial advisers (“FAs”) by foreign regulatory authorities (“FRA”). On 11 May 2015, the MAS issued its Response to the feedback received from the public consultation.
To implement the FAIR proposals, key amendments will be made in five broad areas as set out below.
Changes in the remuneration structure of the FA industry to promote fair dealing
Measures will be introduced to better align the interests of the FA industry with those of its clients. The MAS will be vested with powers to regulate the remuneration of FAs, FA representatives (“FA Reps”) and supervisors of FA Reps (“supervisors”).
Balanced scorecard remuneration framework for FA reps and supervisors
The MAS will require FAs to put in place a balanced scorecard (“BSC”) framework for remunerating their FA Reps and supervisors. Under the BSC framework, performance on non-sales KPIs is to be factored into all variable remuneration that is tied to sales volume paid to FA Reps and supervisors.FA Reps and supervisors who are assessed to have poor grades under the BSC framework will not be entitled to a specified percentage of their remuneration over a specified period. Further, the MAS will be empowered to require FAs to set up an independent sales audit (“ISA”) unit to perform post‐sale checks on quality of advisory and sales process conducted by their FA Reps and suitability of recommendations made to customers.
Regulation of payment and receipt of remuneration
The MAS will require the commission payable on the sale of life insurance policies to be distributed over a minimum period of six years or the premium payment period of the policy, whichever is shorter. The first year commissions will be capped at 55% of total commissions. The remaining 45% will be paid out over the next five years or the remaining premium payment years, whichever is shorter.
The MAS will also be empowered to make regulations prohibiting product providers from paying FAs and FA Reps additional cash or non-cash incentives that are over and above the typical commissions and which are tied to the sales volume of investment products. Such incentives create a misalignment of interests for FAs and their FA Reps with their clients.
Any FA, FA Rep and supervisor, in complying with the BSC framework and the requirements on payment and receipt of remuneration, will not be treated as being in breach of any existing contracts or law.
Making financial advising a dedicated profession
The MAS will be vested with powers to prescribe restrictions and conditions on the types of businesses that FAs and their FA Reps are allowed to carry on.
Enhancing the standards of registered insurance brokers which carry on a business of providing FA services
To ensure that registered insurance brokers who carry on a business of providing FA services have adequate financial resources to support their business, the MAS will be empowered to prescribe or vary the financial requirements or the limit and deductible requirements of a professional indemnity insurance policy, for such registered insurance brokers.
Facilitating the comparison of life insurance products
The MAS has recently launched a web aggregator called compareFIRST which allows consumers to compare life insurance products offered by different insurance companies.
The MAS will be empowered to prescribe requirements for life insurance companies participating in the web aggregator to (i) submit information on their life insurance products to the MAS, or to a vendor appointed by the MAS, for publication on the web aggregator; and (ii) pay a fee for the development, operation and maintenance of the web aggregator and for their usage of the web aggregator.
Facilitating inspections of financial advisers by foreign regulatory authorities
Aside from amendments to implement the FAIR recommendations, the Bills also make amendments to allow the MAS to grant permission to FRAs to conduct inspections of FAs in Singapore.
Currently, the MAS’ powers to allow FRAs (or their appointed agents) to inspect financial institutions in Singapore do not extend to FA. The FA Bill will amend the FAA to align it with other Acts under the MAS’ purview by providing for such powers. Such inspections will allow FRAs from the parent jurisdictions that have regulatory oversight of the FA firm in Singapore to carry out their supervisory functions, subject to conditions as the MAS may impose.
- Financial Advisers (Amendment) Bill 2015
- Insurance (Amendment) Bill 2015
- MAS Explanatory Brief
- MAS Response
An article about the MAS’ public consultation on draft versions of the Bills was featured in a previous issue of the Allen & Gledhill Financial Services Bulletin (October 2014). To read the article entitled “MAS consults on draft legislative provisions and amendments to implement FAIR recommendations and authorise inspections by foreign regulatory authorities”, please click here.