MAS bans 10 firms from selling structured notes, but is this merely a slap on the wrist?

Written by Ng E-Jay
08 July 2009

The Monetary Authority of Singapore (MAS) has announced that it has imposed temporary bans on the sale of structured notes by 10 financial institutions (FIs) which had distributed toxic structured notes linked to the collapsed US financial institution Lehman Brothers.

The bans, which took effect from 01 July 2009, apply to ABN Amro Bank, CIMB-GK Securities, DBS Bank, DMG and Partners Securities, Hong Leong Finance, Kim Eng Securities, Maybank, OCBC Securities, Philip Securities and UOB Kay Hian.

MAS revealed that during its investigations into the sale of the failed structured products last year, it found inconsistencies in the level of due diligence and internal controls applied by the FIs, resulting in various forms of non-compliance with MAS’ guidelines on the sale and marketing of these investment products.

MAS has directed FIs to rectify all weaknesses identified in the investigations, appoint an external person identified by MAS to review action plans and report on implementation, and appoint senior management staff to oversee compliance with MAS’ direction.

MAS also said that until it is satisfied with the measures put in place by the FIs, they will not be able to continue distributing structured note products.

In my opinion, while the MAS is right to put a temporary ban on the sale of structured note products pending sufficient compliance by the FIs, so far the penalties enacted against the FIs have been nothing more than a slap on the wrist.

Many retirees have lost their life savings as a result of the structured products fiasco. Although there have been some concrete attempts by both MAS and the FIs at ensuring accountability and punishing errant sales representatives who mis-sold structured products, too little has been done to address the underlying problem.

• Firstly, financial institutions marketed instruments to retail investors that should never have been made available to the general public to begin with, given their grossly lop-sided risk profile.
• Secondly, the entire structure of the financial planning industry puts immense pressure on sales representatives to meet sales quotas, and indirectly compels them to become slack on due diligence.
• Thirdly, MAS itself is to blame for allowing such toxic products to be introduced into the marketplace.

The structured products fiasco happened not just because a few sales representatives mis-sold products or because some financial institutions failed to put in place adequate compliance procedures.

Instead, there is a systemic lack of accountability in our financial institutions and in MAS itself.

Until the real issues are addressed, what MAS has done so far is nothing more than applying bandages on the superficial wounds while ignoring the internal injuries.