New market conduct guidelines for FIS
They may not have the force of law, but they will impact financial institutions and protect customers.
The Monetary Authority of Singapore (MAS) issued the Guidelines on Standards of Conduct for Marketing and Distribution Activities to emphasise expectations for financial institutions and their representatives to conduct their marketing and distribution activities at retailers and public places in a responsible and professional manner. Four lawyers share their views on what the guidelines spell for the market upon implementation in April 2017.
How will the Guidelines on Standards of Conduct for Marketing and Distribution Activities issued by MAS affect financial institutions?
The guidelines seek to formalise and provide greater guidance on market conduct requirements for the marketing and distribution of retail products, says
Nizam Ismail, head of regulatory practice, RHTLAW Taylor Wessing LLP. “Regulations surrounding selling and distribution of retail products have come into sharp focus, especially after the Lehmans Minibonds issue.”
The aim is to mitigate against the risk of misselling, suitability mismatch, customer harassment due to highpressure sales and marketing, and mishandling of funds, notes Ismail. Most financial institutions would have put in place guidelines on suitability, sales and distribution, and MAS’ guidelines seek to provide a holistic and consistent treatment across banks, insurance companies, capital markets intermediaries, financial advisers, and credit card issuers. “This also ensures consistent treatment across investment products and credit product, which were previously governed by different regulatory problem. Financial institutions, he says, would have to find the balance between customer protection and incentivising the sales force, with customer protection taking prominence. “The various safeguards in the guidelines essentially enable the customers to focus on the product features by seeking to eliminate practices which may distract the customers from the key issues.”
Which of the safeguards do you think will have the most impact on the conduct of activities? Claudia Teo,
partner and head, corporate & financial services at Harry Elias Partnership LLP, says the first safeguard in the MAS’ guidelines, which requires financial institutions to conduct callbacks or surveys for all customers during the free-look or cooling-off period, will have the most impact. “Whereas most of the other safeguards are preventive in nature, the first safeguard has an additional corrective element,” notes Teo. “A customer who experienced inappropriate conduct of misselling, misrepresentation, or pressure selling will be reminded of his right to correct the decision during the callback or survey.” From a monitoring perspective, she says, the first safeguard is also helpful in arresting any consequence of misconduct during marketing and distribution activities.
director, corporate, banking & finance department, Tan Peng Chin LLC, shares the same view regarding the impact of the first safeguard. He adds that another safeguard that could have the most impact on the conduct of marketing and distribution activities is the requirement to conduct regular mystery shopping and site visits to monitor and ensure that practices are in line with the financial institutions’ internal standards and procedures, as well as the guidelines (which apply to the sale of all products, except where the sale is related to a product that the customer has bought).
“Such safeguards are likely to be most effective for retail consumer protection, but they also appear likely to result in a considerable run-up in the costs to conduct marketing and distribution activities,” he says.
Sim Lin Piah, What are further implications of the guidelines for financial institutions and their representatives?
“The guidelines set a consistent standard for retail products, and raises the bar for sales and distribution activities across the financial centre,” says Ismail. “There will be some initial adjustment, but these guidelines generally foster a better market conduct culture across the financial industry, and fosters customer confidence.”
Ismail adds that being set as guidelines (not having the force of law), there is some flexibility for financial institutions to depart from some of these requirements, depending on their specific business models. “This flexibility is a good one, as it allows departure from a ‘cookie-cutter approach,’ and allows financial institutions to take a risk-focussed approach,” he says.
Sim Lin Piah