We had covered the recommendations of the Financial Advisory Industry Review Panel (the Panel) for the financial advisory (FA) industry in our previous issue of the Chronicle (click here).
The MAS has since reviewed the Panel’s report and agreed in principle to the recommendations made by the Panel, and has also made further recommendations. These further recommendations are contained in a consultation paper issued by the MAS in March 2013 for comments by interested persons, a summary of which is set out below.
Raising the Competence of FA Representatives
The MAS has agreed with the Panel’s recommendations to raise the minimum academic entry requirement for new FA representatives, and to grandfather all existing representatives when the new minimum academic entry requirement comes into effect (Implementation Date).
In addition, the MAS is proposing to grandfather representatives who are on a career‐break from the FA industry so long as they have left the FA industry not more than one year prior to the Implementation Date, and subsequently seek to re‐join the industry within one year from the Implementation Date.
For FA representatives who take a career break after the Implementation Date, the MAS is proposing that they remain grandfathered so long as the period between their cessation as an FA representative and subsequent appointment as an FA representative is not more than one year.
The MAS has estimated that less than 20% of potential new entrants to the FA industry each year will not be able to meet the new minimum academic entry requirement. To address this, the MAS has indicated that it will work with Singapore polytechnics to offer a special diploma course in FA services. Individuals with this diploma will be deemed to have met the new minimum academic entry requirement.
Raising the Quality of FA Firms
Currently, an applicant for a financial adviser’s licence is required to have at least 3 years of proven track record in the FA business. The MAS is proposing that this be raised to 5 years. For applicants that are unable to meet the proposed corporate track record requirement, the current shareholding requirements for the CEO and executive directors will continue to apply (ie. the CEO is required to hold at least a 20% shareholding, and the CEO and executive directors should in the aggregate, own at least a 50% shareholding, of the license applicant).
In addition, for a licence applicant or an existing licensed financial adviser that is part of a business group, the MAS is proposing to formalise the current expectation for the parent entity to provide a Letter of Responsibility to the MAS to demonstrate the group’s support for the entity’s Singapore operations.
Making Financial Advising a Dedicated Service
The MAS is proposing that FA firms be allowed to enter into introducer agreements with corporations only (and not with individuals). The MAS has stated it does not intend to restrict the types of corporations that can be appointed as introducers, but this is subject to FA firms implementing measures to ensure that: (i) no conflicts of interest will arise from the appointment of introducers; and (ii) the appointment of introducers will not tarnish the image of the FA firm or the FA industry.
Promoting a Culture of Fair Dealing
Balanced Scorecard Framework for Remuneration of FA Representatives
The MAS is proposing that all FA firms develop non‐sales key performance indicators (KPIs) to measure the performance of their representatives in the following 4 areas:
- Quality of advisory and sales process;
- Suitability of recommendations;
- Adequacy of information disclosure; and
- Customer complaints.
In order to measure whether representatives have met the non‐sales KPIs, the MAS is proposing that all FA firms put in place pre‐transaction documentation reviews and customer call‐backs by supervisors for all sales conducted by FA representatives.
In addition, the MAS is proposing that FA firms set up an independent sales audit unit to perform post‐sale checks on the quality of the advisory and sales process conducted by their FA representatives and the suitability of recommendations made to customers. Such checks could be done on a sample basis and include documentation checks and customer surveys. Such independent checks would supplement the reviews conducted by the supervisors. To ensure independence, the independent sales audit unit should be staffed by individuals who are not involved in the provision of FA services. The MAS has indicated that such unit should have direct access to the board and senior management, and should provide regular reports to them on the achievement of the non‐sales KPIs by the FA representatives.
Complaints Handling and Resolution Processes
To ensure consistent minimum standards in complaints handling and to increase consumer confidence in FA firms, the Panel has recommended strengthening existing requirements in respect of the Complaints Handling and Resolution (CHR) processes of FA firms. In response, MAS is considering the issuance of Regulations under the Financial Advisory Act to enhance the CHR processes of FA firms dealing with retail customers by requiring FA firms to:
- establish a CHR process for retail customers which is independent and prompt;
- designate a person or committee responsible for oversight of the FA firms’ compliance with the regulatory requirements on CHR to enhance accountability and strengthen senior management’s responsibility;
- make information on their CHR process available at their place of business or on their website (if any) so that customers are informed of the appropriate channels to lodge complaints; and
- track and manage complaints data and report such data to the MAS on a biannual basis for accountability.
The MAS is proposing to apply these requirements to complaints relating to the business conduct of FA firms.