accepted. MAS will use expenditure as the proxy and set the continuing financial resources requirement at one quarter of the LFA’s annual expenditure or $150,000 (whichever is higher). Following feedback and requests for clarifications, MAS will also revise the definition of financial resources by removing certain items such as noncurrent assets and assets that are not readily convertible to cash within 30 days. Professional indemnity insurance Feedback was given to MAS that the use of gross revenue as a proxy to determine minimum PII coverage will remove the scale benefits of growing the LFA’s business. In reply, MAS pointed out that this was in line with the practice in other jurisdictions including the UK and Australia. However, MAS did agree that it should impose a cap on PII coverage and this will be at S$10 million for LFAs whose annual revenue exceed $5 million. Some respondents suggested extending the requirement for minimum PII coverage to LFAs serving accredited investors (“AIs”) as such LFAs face a similar risk of claims by AIs. Whilst MAS agreed that such LFAs faced a similar risk, it did not want to make PII coverage mandatory, but it would instead strongly encourage LFAs serving AIs to obtain adequate PII coverage. In relation to the suggestion that individual FA representatives should have PII coverage, MAS felt that since FA representatives act on behalf of their principals, it would be preferable that PII be procured at the firm level. In relation to the suggestion that the PII requirement extend to financial institutions exempt from holding a financial adviser’s licence, MAS pointed out that this was already required for certain financial institutions whose activities were advisory in nature (such as fund managers and corporate finance advisors) whereas for life insurance companies and banks, these entities were already required to comply with higher capital requirements. MAS however has accepted the suggestion that alternative forms of PII (such as group PII, hybrid PII and group hybrid PII) should be allowed, provided that such PII arrangements do not undermine the interests of customers. Non-FA activities conducted by LFAs Scope of prohibited non-FA activities MAS has accepted feedback that some financial planning services are complementary to the provision of FA services and that LFAs should be allowed to provide services such as will writing, estate planning and tax planning either directly, or by way of referral. This however will be subject to the following conditions: (a) LFAs must conduct due diligence to ensure that the persons conducting such activities, whether in-house or through a referral, are competent and suitably qualified; (b) Before making the referral or offering the non-FA services, LFAs must provide written disclosure to customers to clearly explain which services provided by the LFAs are covered under the FAA and which are not, and the responsibilities of the different parties involved in the process; and (c) LFAs must provide customers with a copy of the disclosure document mentioned in paragraph (b) above and obtain written acknowledgement from their customers that they have understood the disclosure. LFAs’ basis of remuneration for referrals of clients in respect of non-FA activities Given the feedback that it is market practice for remuneration to be tied to successful referrals, MAS has relented and will not prohibit volumebased remuneration structures for referrals by LFAs in respect of non-FA activities. However, LFAs will be required to ensure that: (a) No conflicts of interest will arise from the referral arrangements in respect of nonFA activities; and (b) The referral arrangements in respect of non-FA activities will not tarnish the image of the FA firm or FA industry.
such conflicts. In response, MAS has emphasised that conflict of interest issues would not be limited to the topic of appointment of introducers and FA firms should be conscious to address issues of conflict of interest that might arise in all business areas. Whether a particular arrangement would give rise to a conflict of interest, would depend on the specifics of the arrangement and the circumstances, and it would (understandably) be difficult for MAS to give more prescriptive guidance beyond this. As a general principle, MAS has reiterated that FA firms should put in place policies and procedures to assess that the two principles of no conflict and no tarnishing of the image of the FA firm/industry (“the core introducing principles”) are adhered to, both at the time the introducer is appointed and thereafter on an ongoing basis. Such policies and procedures should cover: (a) The types of information to be collected as part of the FA firm’s due diligence process on the introducer; (b) The process and criteria for assessing and being reasonably satisfied that the appointment of the introducer satisfies the two core introducing principles; (c) The process and criteria for assessing and being reasonably satisfied that the introducer is not effecting introductions as a full-time occupation or business activity; (d) The process and criteria for assessing and being reasonably satisfied that the remuneration of the introducer will not encourage the introducer to go beyond its role as an introducer; and (e) The process and criteria for conducting ongoing reviews of the introducer’s activities, to ensure that the appointment continues to satisfy the two core introducing principles, and continues to adhere to applicable laws and regulations. MAS also commented that disclosures made by the introducers themselves may be relevant for assessing whether the introducer satisfies the two core introducing principles, but the FA firm must be reasonably satisfied that it can rely on such disclosures both at the time of appointment and on an ongoing basis. Where an FA firm itself acts as an introducer, the FA firm will be required to put in place policies and procedures in the following areas: (a) Maintaining a register of its representatives who are performing introducing activities; (b) Ensuring that its representatives use a standardised script for introducing activities, explaining that the FA firm is acting as an introducer, and not a financial adviser; (c) Providing training to ensure that its representatives who are effecting introductions are familiar with the scope of introducing activities, including what can or cannot be said, when making an introduction; (d) Putting in place complaints handling procedures for complaints received against its representatives in respect of their introducing activities; (e) Ensuring that substantiated complaints against its representatives in respect of their introducing activities are taken into account when determining their remuneration; and (f) Ensuring that the remuneration structure of its representatives encourages ethical behaviour rather than aggressive introductions. Introducer agreements with corporations or individuals MAS had initially proposed that FA firms should enter into introducer agreements only with corporations because it was felt that this would reduce the compliance burden on FA firms given that there would be fewer introducer agreements to monitor. However, from respondents’ feedback, it seems that there was a genuine business need for FA firms to use individuals as introducers and many FA firms do so, because individual introducers often have extensive relationships and networks. Accordingly, taking this into account, MAS will not prohibit FA firms from entering into introducer arrangements with individuals.
Prohibition of FA firms from acting as introducers in respect of investment products for which they are authorised to provide advice MAS had also initially proposed prohibiting FA firms from acting as introducers in respect of investment products which they themselves are authorised to advise on. However, respondents have pointed out that this prohibition could have the unintended consequence of limiting customers’ access to FA firms which advise on “specialist” sub-classes of investment products. Taking this into account, MAS has decided that it would not prohibit FA firms from acting as introducers in respect of investment products which they can advise on, but also took the chance to clarify when the FA firm would be considered to be introducing and when it would be considered to be advising. Thus, where the FA firm is already authorised to advise on a particular class of investment products, it would be considered to be introducing and may rely on the introducer exemption in regulation 31 of the Financial Advisers Regulations (“FAR”), only where it is the customer who initiates an enquiry on that class of products, or a specific product within that class. But where it is the FA firm who suggests that the customer consider a class of products, it would be deemed to be providing advice and the the introducer exemption would not be applicable. Conversely, where the FA firm is not authorised to advise on a particular class of investment products, the FA firm may rely on the introducer exemption when effecting introductions in respect of those investment products, but in such a case, the FA firm will be required to comply with the requirements set out in regulation 31 of the FAR and the “Notice on Appointment and Use of Introducers by Financial Advisers (Notice FAA-N02)”. Provision of product information to customers The FAIR Panel had suggested that introducers should be prohibited from providing product information to customers and that this should be reserved to the FA firm and its representatives. Some respondents sought clarity from MAS as to the type of information that introducers would be allowed to provide to customers. In response, MAS said that the information that introducers should be allowed to provide would be as follows and should be set out in a Client Acknowledgement Form: (a) The name of the introducer; (b) A statement that the introducer, when carrying out introducing activities, is not permitted to give advice or provide recommendations on any investment product to the customer, market any collective investment scheme, or arrange any contract of insurance in respect of life policies, other than to the extent of carrying out introducing activities; (c) The name of the FA firm and a description of the types of FA services the FA firm is authorised to provide to the client. Where the introducer is carrying out introducing activities for more than one FA firm, the Client Acknowledgement Form should indicate which FA firm the client wishes to be introduced to; (d) The roles and responsibilities of the introducer and the FA firm. Where the introducer is an FA firm, this section should explain that the FA firm is acting as an introducer, and not a financial adviser; (e) How the introducer will be remunerated by the FA firm for making the introduction; and (f) Where the introducer is a corporation, whether its directors and/or shareholders have any substantial shareholdings in the FA firm, and whether the introducer has any other relationship with the FA firm or any of its representatives. The Client Acknowledgement Form would thus form a script which the introducer would use during the introduction and the customer would be asked to sign it in acknowledgement of having read and understood it. While respondents have suggested that introducers could be allowed to provide factual information to customers, MAS felt that productspecific information and materials (such as prospectuses, product highlights sheets and fact sheets) should only be provided by the representatives of the FA firms who are responsible for providing financial advice, and not by the introducers.
be sold through an online channel directly. MAS explained that the proposal by the FAIR Panel for an FA representative or customer service staff to facilitate the sale of basic insurance products was intended to help ensure that consumers understand the features of the products and to guard against consumers overcommitting on premiums or under or over insuring themselves. Should consumers attempt to seek free advice from the FA representative or customer service staff before purchasing the basic products, MAS said that the FA firm could consider charging a fee for rendering such advice. Accepting the feedback concerning an online sales channel, MAS would allow life insurance companies the option of distributing basic insurance products through an online direct channel, provided that : (a) Life insurance companies must put in place safeguards (such as requiring customers to acknowledge that they can afford the products and that the coverage is adequate, requiring customers to make the necessary health declarations, and making disclosures and disclaimers known to customers) for the online sale of “basic insurance” products; (b) Life insurance companies must provide an avenue for customer queries to be addressed; and (c) Tier 1 life insurance companies (i.e. Singapore incorporated life insurance companies with at least S$5 billion in assets) must still offer “basic insurance” products through their customer service staff or FA representatives. In addition, life insurance companies that choose to offer an online channel for the sale of basic insurance products would need to institute procedures and controls to guard against moneylaundering and terrorist financing. Types of basic Insurance products There were varying feedback as to the types of insurance products that ought to be considered to be basic insurance products and thus be included in the new requirement. Taking the feedback into account, MAS has concluded the basic insurance products to be included should be those that meet the primary protection needs of most Singaporeans and should cater to their preference for life insurance products with surrender value. These would include term life and whole life insurance products but need not include those with a higher investment or savings element (such as ILPs or endowment products). MAS also accepted that stand-alone critical illness products are less popular with consumers and need not be included. The features of these basic insurance products should be standardised and kept simple so consumers can easily understand them and buy them through the direct channel without the need for advice. Recognising the substantial get-up costs associated with establishing and managing participating funds, MAS has also indicated that life insurance companies which do not currently offer participating products would not be required to offering participating basic insurance products. Transparency of products Disclosure of bundled insurance products The FAIR Panel had proposed that when recommending bundled life insurance products, FA representatives should be required to inform consumers of the option of purchasing term life insurance and placing the difference in premium in a fixed deposit as well as inform customers of the salient features of the bundled insurance product as compared with a term life insurance product. This proposal attracted various feedback from respondents. Questions were raised as to whether there could be a meaningful comparison and whether the disclosure might have other unintended effecst such as making the insurance products appear more attractive given the current low interest rate environment. In response, MAS explained that fixed deposits were recommended by the FAIR Panel as a basis for comparison because they were a readily accessible product for retail consumers. Recognising the difficulties, MAS said it would work with the insurance industry to disclose an inputed rate of return for the bundled life insurance product. The inputed rate of return would serve as a proxy of the guaranteed return on the investment or savings element of the bundled insurance product. With this disclosure, consumers would be better able to exercise their own judgment on the
options available to them. MAS would work with MoneySENSE to provide resources for consumers to understand how the inputed rate of return works. Disclosure of trailer fees for collective investment schemes The FAIR Panel had recommended that fund managers of collective investment schemes should be required to disclose trailer fees paid to FA firms in the product highlights sheets. While some respondents objected to this on the grounds of confidentiality, MAS in response pointed out that currently FA firms would already be required to disclose in writing all remuneration they receive for recommending investment products (including trailer fees) under the “Notice on Information to Clients and Product Information Disclosure (Notice FAA-N03)”. This proposal only entails the standardisation of the manner of disclosure, and MAS has indicated it would work with the industry on the implementation details. Disclosure of total expense ratios of participating funds Recognising the feedback from respondents, MAS said it would work with the industry and MoneySENSE to ensure that the disclosure of the total expense ratio for participating funds is done in a manner which is comprehensible and useful for consumers. Cover page to benefit illustration (“BI”) and product summary The FAIR Panel had recommended the inclusion of a cover page to the BI and Product Summary to highlight specific information to consumers. Noting the feedback, MAS said it would work with the industry to ensure that the cover page is simple and easy for consumers to undertand. PROMOTING A CULTURE OF FAIR DEALING Commission payout structure of regular premium life insurance products Period of commission payout To better align the interests of FA firms with customers and to incentivise better after sales service, the FAIR Panel had proposed that commissions for regular premium life insurance policies be paid over a minimum period of six years or the policy term, whichever is shorter. Feedback on this proposal was mixed. Some respondents agreed with it as the commission payout period for most regular premium life insurance products is currently set at six years. Those who disagreed felt that six years was too long and expressed concerns at a potential loss of commissions if a FA representative were to retire or join another FA firm. In response, MAS pointed out that the policy term of most insurance products were longer than 10 years, and as such, it took the view that a commission period of six years was reasonable, and would serve to align the interest of the FA firm with that of the consumer. Some respondents suggested spreading commissions over premium payment years rather than policy years as commissions are currently system configured to be paid out upon the receipt of premiums and any re-configuration of the system could incur additional costs. MAS agreed with this and will be revising this proposal such that the payment of commissions by product manufacturers to FA firms and their representatives is over a period of six years or the premium payment period of the policy, whichever is shorter. Re-distributing commissions – cap on first year commissions The FAIR Panel had proposed capping first year commission payments at 40% of total commissions. This was objected to by the majority of respondents on the basis that it would impact the income of FA firms and representatives, possibly resulting in retention and recruitment difficulties with respect to representatives and reduced cash flow to meet their operating expenses for FA firms. Respondents also
suggested that the Balanced Score Card (“BSC”) remuneration framework also proposed by the FAIR Panel might be more effective in aligning the interests of FA representatives with those of their customers. MAS generally agreed with the feedback and has noted that a cap of 40% will impact good and errant representatives alike, whilst the BSC will more effective to penalise only errant representatives. However, given that BSC is a new initiative and as yet untested, MAS decided that it should still impose a cap on first year commissions but would increase the limit to 55%. This would be in line with the current commission percentage for most regular premium life insurance products. The cap could be reviewed at a later date after ascertaining the effectiveness of other FAIR initiatives including the BSC remuneration framework. BSC framework for remuneration of FA representatives Applicability of the BSC remuneration framework To better align the interests of FA representatives with those of their customers, it is proposed that the BSC framework will incorporate non-sales key performance indicators (“KPIs”) in the remuneration structure for FA representatives and their supervisors. Most respondents supported this proposal although there were queries from respondents as to how this would be operationalised, and whether the BSC remuneration framework would also apply to FA firms serving investment savvy clients. In response, MAS reiterated that the primary objective of the BSC remuneration framework was to ensure that FA representatives provide quality advice appropriate to a customer’s specific needs. This would be in line with section 27 of the FAA which requires FA firms and their representatives to have a reasonable basis for recommending any investment product to a customer. The MAS “Notice on Recommendations on Investment Products (Notice FAA-N16)” further elaborates on the standards to be maintained by FA firms and their representatives pursuant to section 27 of the FAA. Accordingly, MAS clarified that the BSC remuneration framework will only apply to those FA firms and FA representatives to which section 27 of the FAA and Notice FAA-N16 applies. Proportion of remuneration to be subject to the non-sales KPIs MAS had proposed that a higher proportion of a FA supervisor’s remuneration be subject to nonsales KPIs as compared to the remuneration for a FA representative. Feedback to this was mixed. In response, MAS reiterated that the objective of the BSC remuneration framework was to promote good behaviour and to encourage FA representatives to provide quality advice and recommendations. As such, a signification proportion of a FA representative’s remuneration should be subject to non-sales KPIs whilst supervisors (who have influence and responsibility over their representatives) should therefore be remunerated according to their representative’s performance under the BSC remuneration framework. MAS stated that it has agreed with industry associations on the following principles for the BSC remuneration framework: (a) A representative’s performance on the non-sales KPIs should be factored into all variable remuneration that is tied to sales volume paid to the representative, as volume-based remuneration poses inherent conflict to customers’ interest; (b) A representative’s performance on the non-sales KPIs will be assessed based on sample checks on the representative’s total portfolio of transactions and any infractions discovered will be factored into the variable remuneration that the representative is entitled to; and (c) A representative who performs poorly under the BSC framework will be put on probation and be subject to close supervision by his or her FA firm, and a consistent poor performer will be terminated. MAS further clarified that FA representatives and supervisors who are paid a fixed salary would still be subject to monitoring under the BSC remuneration framework and that their performance on the non-sales KPIs would have to be factored into their appraisals, including pay
reviews and considerations for promotion. Non-sales KPIs MAS had earlier proposed four non-sales KPIs – namely “Quality of Advisory and Sales Process”, “Suitability of Product Recommendations”, “Adequacy of Information Disclosure” and “Customer Complaints”. Taking account of feedback and after reconsideration, MAS will replace “Customer Complaints” with “Standards of Professionalism and Ethical Conduct”, and rename “Quality of Advisory and Sales Process” as “Understanding Customers’ Needs”. The revised non-sales KPIs will therefore be as follows: (a) Understanding Customers’ Needs (b) Suitability of Product Recommendations (c) Adequacy of Information Disclosure (d) Standards of Professionalism and Ethical Conduct Methods for measuring non-sales KPIs To measure non-sales KPIs, the FAIR Panel had suggested that supervisors perform pretransaction documentation reviews and customer call-backs on all sales conducted by FA representatives, and that FA firms be required to set up an independent sales audit unit (“ISA Unit”) to perform post-transaction checks on the quality of FA services rendered (which could be done on a sampling basis). Full scale documentation reviews by supervisors Two respondents gave feedback that full scale pre-transaction documentation reviews are currently the norm in their firms, whilst others were of the view that such reviews were costly and could lead to delays in transaction processing. Others also suggested giving FA firms flexibility in deciding on the type of transactions to review. To this, MAS responded that full scale pre-transaction documentation review should be applied to all transactions given that this is the first level of checks on the quality of advisory service. Furthermore, for transactions not selected for review by the Independent Sales Audit unit, this would be the only check done on that transaction. However, MAS would allow pre-transaction documentation review to be conducted by parties other than supervisors, such as back-office functions or through system-based checks, provided that the effectiveness of these alternatives are ensured. In response to a query, MAS also stated that pretransaction documentation review should not be conducted during the free-look or cancellation period. This was because during that time, even though the customer could still exit, he would already have to bear any changes in the value of the product and to pay fees and charges. As such, pre-transaction documentation checks must be carried out at the outset. Full scale customer call‐backs by supervisors The proposal requiring supervisors to conduct pretransaction customer call-backs on all sales conducted by their representatives was objected to by many respondents on various grounds, such as incurring the ire of customers, unproductive use of supervisor’s time and creating the mistaken impression that the representative was incompetent. Recognising some of the difficulties, MAS will only require FA firms to conduct full-scale pretransaction customer call-backs for sales involving “vulnerable customers” and sales conducted by representatives who have had BSC failings, representatives with a two-year persistency rate below 75% for the sale of life insurance products and representatives subject to close monitoring by the FA firm. MAS also clarified that infractions discovered during such call-backs would not affect the representative’s non-sales KPIs as such, if the representative is able to remediate them before the transaction is effected. In response to a suggestion by one respondent, MAS said that a customer certification would not be a substitute for a call-back or a survey since the call-back or survey is meant to serve as an additional check on the quality of the advisory sessions.
Post transaction checks All respondents agreed with the proposal for an ISA Unit to be set up to perform post-transaction checks. Incorporating the feedback from respondents, MAS would require all FA firms to set up an ISA Unit to conduct quarterly post-transaction sample checks on the quality of FA services provided by their representatives. The ISA Unit is to be staffed by personnel not involved in providing FA services, and should have direct access to as well as provide regular reports to the Board and Senior Management. It would be acceptable for an existing function within the FA firm that is independent of the FA business and staffed by competent personnel (such as Compliance or Risk Management) to perform the duties of the ISA Unit. In the alternative, the function of the ISA Unit can be outsourced to an outside service provider. MAS also provided further clarification as to how such post-transaction quarterly checks will work. Every quarter, all FA representatives would be assigned a BSC grading based on the number and severity of infractions uncovered from posttransaction sample checks done by the ISA Unit, as well as from mystery shopping surveys and from customer complaints. This will determine a FA representative’s remuneration for the quarter. MAS also provided some guidance on how infractions uncovered from post-transaction sample checks will be classified as major or minor infractions. A major infraction would be one which has a material impact on the interests of customers or impinges on the fitness and propriety of the FA representative, and refers to deliberate acts of misconduct or cases of gross negligence. Examples of major infractions would include the following: (a) Recommending a product that is clearly unsuitable for a customer, based on information declared by the customer; (b) Recommending a customer to enter into switching transactions that are unnecessary and purely for the representative’s benefit; (c) Failing to provide and explain material information on the product to a customer that if properly disclosed would have resulted in the customer not purchasing that product; (d) Failing to execute a customer’s instructions without valid cause resulting in the customer incurring losses; or (e) Wilful acts of misrepresentation or other serious misconduct. A minor infraction would be one which has some impact on customer interests in relation to the provision of FA services but is not deemed a major infraction. MAS has clarified that the BSC framework is not intended to penalise representatives for minor administrative lapses or errors that do not have an adverse impact on customers. MAS has indicated that the impact of the BSC grading on a representative’s remuneration is that a representative without any infraction or with minimal minor infractions in a quarter will be entitled to that quarter’s full variable remuneration. On the other hand, a representative with one or more major infractions or 30% or more cases with minor infractions in a quarter will risk losing all or a large proportion of the variable remuneration for that quarter. Capping or banning commission remuneration altogether? During the consultation, two respondents resurfaced an old suggestion that commission payments be capped or banned altogether. This was an proposal that had emerged in the early days of the FAIR review although the FAIR Panel itself decided not to pursue this initiative. In response, MAS confirmed that it had considered this as a possibility but in the end it was not persuaded that Singapore was ready for a move to a fee-based regime. MAS cited a survey it conducted in May 2012 in which 80% of the respondents indicated that they would not be prepared to pay an upfront fee for advice. MAS also had some concerns that such a move could result in consumers needing to pay more for their protection or investment needs as well as reduce the number of FA representatives in the industry.
Banning of product-specific incentives for FA representatives The proposal by MAS to ban product specific incentives given by FA firms to FA representatives was well received, and various suggestions were given as to the extension of this proposal. One respondent suggested that product specific incentives given by product manufacturers to FA firms and representatives be prohibited as well. Other respondents also suggested extending the prohibition to product classes, for example, collective investment schemes versus ILPs. Taking into account the feedback, MAS would be extending the prohibition to cash as well as noncash incentives given by product manufacturers to FA firms and representatives that are over and above the typical commissions that are tied to sales volumes. This would prevent product manufacturers, which may not be distributors, from circumventing the initial proposal by providing such additional incentives directly to FA representatives. This will also reduce the risk of FA firms putting pressure on their representatives to meet certain sales targets so as to receive additional incentives from the product manufacturers. MAS would also extend the prohibition to seasonal or short-term incentives given in respect of different product classes, so that FA representatives would not be encouraged to recommend products from a particular product class over another, even if it is not in the customer’s best interest. However, recognising also that it would be important for consumers to have adequate insurance protection for life’s unexpected events, the MAS ban on product-specific incentives and product class incentives would not apply to the sale of pure protection products such as term life insurance products. Accountability for fair dealing in FA firms As there was broad support for the proposal for MAS to incorporate its assessment of the efforts of the Board and Senior Management of FA firms in promoting a culture of fair dealing within their organisations into MAS’ risk assessments and regulatory reviews of FA firms, this would be duly implemented, and additional guidance would be issued by MAS in due course. MAS did also point out that this proposal is not a new requirement per se, since the expectation of the Board and Senior Management to have responsibility to ensure fair dealing is already provided for in the existing MAS Guidelines on Fair Dealing. Complaints handling and resolution (“CHR”) process Independent process Respondents were generally supportive of the proposal for the unit handling complaints to be independent of the unit against which the complaint is made. Whilst most respondents supported this proposal, some respondents suggested that frontline business units would be better positioned to respond to complaints and that an independent unit would raise compliance costs. Others suggested that channels such as call centres, or sales and servicing employees who deal directly with customers could be considered independent of the business unit. Respondents also gave suggestions as to the workings of the CHR in that monitoring of the CHR process should be done independently with a central complaints management system together with a process in place to escalate complaints to other departments or Senior Management. Another respondent suggested that MAS investigate and handle complaints against Senior Management and top salespersons as internal units would not be truly independent in such instances. Responding to the feedback, MAS continued to feel that an independent CHR unit would be preferable in order to avoid any conflict of interest and to reassure customers that their complaints are being handled fairly. MAS also clarified that internal units which are independent of the sales and advisory function (such as Compliance), can function as the CHR unit. MAS also agreed that a centralised complaints management system would be useful and would allow FA firms to track complaints data and take proactive measures to prevent more complaints arising from similar root causes. Addressing the concerns with regard to compliance costs, MAS agreed that complaints that are resolved by the close of the next business
day will be exempted from the requirement to send a written acknowledgement to the customer and can be excluded from the complaints data which FA firms would otherwise have to submit to MAS. With regard to complaints against Senior Management and key staff members, MAS pointed out that if a complaint cannot be satisfactorily resolved by the FA firm’s CHR unit, the complainant may refer the matter to the Financial Industry Disputes Resolution Centre (“FIDRec”). Application of “business days” to timelines Accepting feedback from respondents, MAS will be using “business days” instead of “calendar days” in all stipulated CHR timelines. Six-week timeline In respect of the six-week timeline for resolving complaints, one respondent suggested that the six-week timeline for CHR should exclude the settlements process itself, so that the six week period does not include the time taken for the complainant to consider the FA firm’s settlement offer. Responding to this suggestion, MAS clarified that it is already intended that the proposed timeline include situations where the FA offers a settlement. As such, the FA firm must, by the end of 30 business days, provide: (a) a final response setting out its position on the complaint; (b) an offer to settle the complaint; or (c) for more complicated cases, a written response informing the complainant of the reasons for the delay, an indicative timeframe for a final response, and his or her right to refer the complaint to an approved dispute resolution scheme under the MAS (Dispute Resolution Schemes) Regulations 2007. Scope of the CHR recommendations In response to respondents’ queries, MAS has clarified that the proposed CHR requirements would apply only to complaints in relation to business conduct requirements under the FAA. They would not apply to complaints about the commercial practices or service standards of an FA firm, as these stem from the FA firm’s commercial decisions rather than from FAA requirements. However, all FA firms would be strongly encouraged to apply the standards and principles in the CHR recommendations to other types of complaints. Acknowledgement of complaints In response to queries, MAS has clarified that email and SMS acknowledgements would be acceptable but verbal acknowledgements would not suffice. Tracking and management of complaints In response to queries as to what type of complaints data would need to be tracked and submitted to MAS, MAS said that it would be issuing a separate consultation paper on the draft Financial Advisers (Complaints Handling and Resolution) Regulations which will further elaborate on the types of complaints data that should be reported. The complaints statistics would itself be used by MAS to monitor possible widespread or regular failure by an FA firm in complying with business conduct requirements and allow MAS to determine if there might be a need to further re-assess a particular firm’s business conduct practices. Complaints data would also be of use if MAS chooses to publish complaints statistics on a consolidated industry basis or as aggregated complaints statistics at firm level as this would enhance transparency across the industry. Involvement of industry associations in promoting fair dealing Finally, most respondents supported the MAS proposal that industry associations play a role in promoting fair dealing, including: (a) Formulating a set of key performance indicators to measure their members’ achievement of the fair dealing outcomes; (b) Establishing monitoring mechanisms such as customer surveys and mystery shopping exercises to measure their members’ progress in achieving the fair dealing outcomes; and Sharing the results of the fair dealing assessments with the public and with MAS on a regular basis.
REFERENCES Please click on the links below to refer to the relevant documents. 1. MAS Response to feedback received on the Consultation Paper on Recommendations of the FAIR Panel 2. Consultation Paper on the Recommendations of the FAIR Panel 3. Report on Recommendations of the FAIR Panel
